the chief asian correspondent for asia. thank you for joining us. you did nine charts yesterday. i will not try beating it and that was exhausting. easy charge, the u.s. ongoing trade deficit. japan, the yen dropping today on early signs that the summit with the any new trade demands from the u.s.. reducing some rising risk c oncerns. how are you feeling about japan u.s. side of things. we will talk about china in a moment. 's disapproval ratings are above his approval ratings for the first time in a long time. he really has the economy now.

>> too many contingencies. there are bilateral deals that are far more efficient, profitable, better off for our work. the tweet comes up out of nowhere. bad, which brings me to my second chart, neville. maybe i will go for the record of nine.

to my second chart, neville. this is a wonderful chart showing you u.s. trade uncertainty, which is the highest level since 1994 when nafta was signed. how are you feeling amidst this uncertainty? >> not too worried about growth at the moment because we aren't seeing a material shift in direct trade policy in terms direct trade policy in terms of the tariffs being imposed on china, the residual tariffs we are seeing imposed on japan and other economies. their impact on global growth is likely to be rounding error at most. we are likely more concerned about the indirect effects of a significant shift in u.s. trade policy compared to where we have been the last 20 or 30 years. in the near term, the bigger corporatehit to

sentiment, business investments walk on toich can the world. spikes in political uncertainty, if they are not an company by a big tightening in financial conditions don't tend to be that economically damaging economically damaging in the short run. if you go back to the brexit vote of 2016 -- for the time being, we are less worried about the short term. mark: you are a fixed income guy, novell. debt, japanese selling u.s. sovereign bonds. ifan uses debt as a tool rhetoric occurs? jack: i doubt they use rhetoric

as a trade dispute, but -- >> the u.s. will have to sell huge amounts of treasuries in selluture huge amounts of treasuries in the future and you are creating a political economy regime. we tend to think this is an environment where the dollar can get weaker and that could be the mechanism by which there would be reduced appetite. mark: does your view from -- differ from never tell? >> i think the dollar could flow ofbut it is a funds, so as the ecb stops buying up assets and the fed the fedits balance shrinks its balance sheet, less funds are flowing to the u.s.. that should weaken the dollar marginally but most of the weakening has probably happened. mark: the reserve requirement cuts? the bond market reacted, didn't it. in terms of dumping u.s.

treasuries, it is not in japan or china's interest. stay with surveillance. plenty coming up. john williams plays down the inverted yield curve as u.s. rates gradually rise and the volatility trade. market buying opportunity for em stocks. this is bloomberg. loomberg.

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surveillance, i'm mark barton in london. let's get the business flash with taylor riggs. taylor: hammerson has withdrawn its offer to buy intu properties. the initial bid of $5 billion had come as model owners had and focuso cut costs on premium properties. the decision was announced after click here denied its pursuit of hammerson, a deal that would have created one of the largest retail property owners in europe. -- for 42 euros a share. total says it will file a tender offer at the same price per share following completion of the 1.4 billion euro deal. it represents a 30% premium to closing prices yesterday and will add electricity and natural gas supply to total's core oil business. more thanis closing half its stores in the u.s. on

may 29 for an afternoon of bias training. the move comes as a scramble to restore trust after the arrest of two glaspie -- black patrons in philadelphia. according to bloomberg populations, the move could set the company back just about $6.7 million in lost sales. amc is due to open the first cinema in saudi arabia for more than three decades later today. the kingdom lifted a ban on movie theaters. it will show all major releases that "are appropriate for the middle east." it plans to open as many as 40 cinemas. that is your bloomberg business flash. let's focus on the fed. john williams is due to take the helm of the new york fed says and inverses juncker was the powerful sign of recession. played on risks would happen as the central bank raises rates.

megan green is here and neville hill from credit suisse. megan green was the person who asked john williams the question in madrid about the you will curve. were you surprised by his answer? he doesn't think it will invert. do you agree with everything he said? agree with everything he said. i think he is right that it is normal for the yield curve to be flattening at this point. he did point that it was a powerful -- jay powell and janet it is a worryid because it is a reflection of inflation expectations rather than growth expectation. it needn't be a signal of recession. williams thinks it has predictive powers. mark: which is the perfect

opportunity to bring up chart number four, this pretty much says what it says. it portends an imminent recession. will the curve invert? does it say anything about impending economic doom? somele: it might invert at point. we'd be skeptical it gives us a strong signal on a recession, because one of the reasons u.s. 10 year yields are finding it hard to rise as much as they are is in part because you have got a whole other chunk of the global fixed-income space running at low interest rates. you have 10 year bonds -- government bonds yielding zero. the capacity for u.s. 10 year yields to break above 3% substantially, they can go above but not too far. it will be pretty challenged unless you get a shift in monetary policy, particularly in europe.

until that happens, the curve may be giving us a bit of a poor steer. mark: to keep cracking, this is another wonderful chart. this shows the spread between the two-year treasury and the two-year bandh -- bund. that is at a 28 year high, the spread. do you expect the spread to widen? neville: i think short-term, it will have to. the ecb has said they will not start raising rates until the end of qe, the back end of this year at least. we are really looking at another 12 months or so before we get the first rate rise from the the eurozone has some catching up to do, but it is more of an issue that eurozone rates are too low rather than not going up quickly enough compared to the u.s. where you are in a much more mature stage of the cycle. mark: he also played down the widening of the ois spread to the widest levels since the financial crisis.

the main source of strength appears to be relies strength. we need to deliver to the global commodity markets we did a few years ago but certainly will not deliver a huge dose of strength. >> i want to go out with the charge. this is the csmi merger index. the blue line is volatility to address what we discussed. we are flying. stay with us. 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. >> this mark: this is "bloomberg surveillance." let's get the first news with

taylor rigs. taylor: a possible summit may happen with kim jong-un with pompeo. he is secretary of state and raises optimism the meeting could produce a deal. meanwhile, donald trump said the u.s. and north korea have been holding direct talks, quote, at extremely high levels. the president's comments came after he met japan's shinzo abe in florida. president trump: the north korea problem has been with us many years and something that should have been taken care of years ago, decades ago. it's at a point now we don't have a choice and must be taken taken one way or care of one way or another. i look forward to meeting with kim jong-un. taylor: global news 24 hours a day on air and twitter, powered by more than 2,700 journalists and analysts in more than 120

countries. i'm taylor rigs. this is bloomberg. mark? wonderful weco function to bring up particular pieces of data. get to that. this is chart number eight and highlights the data crossing the terminal. u.k. inflation flowing to the weakest level of the year in rch, easing march, easing pressure on consumers after a year of prices outstrip wages. consumer prices rising 2.5% a year earlier, down from 2.7% as you see on that chart. less than economists estimated. core inflation goes to 2.3%, lowest rate of the of the year and could weaken the case for more b.o.e. rate increases this year. policymakers are expected to hydrate in may. but if inflation keeps coming coming s it point down does it point to a rate

hike later this year, downward inflation coming from women's clothing. 10 against down . the dollar. is since the brexit vote. is this number eight or nine? this is chart 9. his is cable dollar, pound dollar cable is pound dollar and of course euro pound which is the yellow line and it's clear the pound has fared fared better against the dollar than the euro since the brexit vote but when it comes to cable the levels we were on the day of the brexit referendum in june, 23, 2016. et's stick with u.k. politics. teresa may's brexit plan faces a threat when it's debated in house of lords. they are seeking to make changes to it. perhaps the most significant is a proposal to keep britain in the customs union. according to

according to one, the amendment could pass by more than 50 votes. how much of a danger could this be to may's flavor of brexit, joining us is bloomberg's news director, and megan and neville from credit swiss is still with us. if this amendment is approved, david, what happens when it comes back to the house of commons? david: that's the question. it's widely expected this will pass and seems they do have the votes to press the government keep in keep in the customs un crucially i said a customs union and not the customs union. the deal is in the semantics. then it goes back to the commons because they don't have to change the policy depending on what the lords say. people think they have the votes for this, also, to pass in the house of commons and teresa may has a problem on her hands and this will be the big fight we see over the brexit issue over the coming months. this is whether or not to rub

out the thick red line teresa may laid down to pull britain out of the customs union. they say they want britain to stay in and the europeans definitely want brit ton stay in. the government says it's not feasible or possible because it removes one of the big bonuses of brexit which is to negotiate free trade deals with other countries all around the world. this would be an enormous u-turn by mrs. may. mark: how do you appease those who want union and the pro be a eers and would problem going against the red line. david: is there a fudge possible? that's the interesting question. is there a way to word this commitment to a customs union to commit tariff free trade that still somehow enables brit ton have some say in the trade deals? we don't know. we're in unchartered territory.

that arrangement hasn't been done. there are countries in the customs union, for instance, turkey has that arrangement and is controversial in turkey because they have to surrender a lot of sovereignty for that to map. the government would hope for a fudge to be close to that but we'll have a big showdown at this point in the summer. mark: neville, hard, soft, medium, what are we headed toward? neville: headed toward brexit for the reason you described. since the general election we've seen the government and opposition slowly shift in the direction of a softer brexit and think this vote is yet another step on that road. furthermore the house of commops is likely to support it and what's been interesting the last couple months has been the threat in the risk to teresa may's government from the hard brexiteers. but the bark is far worse than the bite. the transition deal that was

jp d a few weeks ago, morgan said it would turn it into a problem and it was to throw fish out of the boat. hardly stuff to bring down the government. effectively it's the way wee see politics shift. mark: we have a shift to inflation, megan. i won't use the word flabbergasted but it has slowed to the lowest level, c.p.i. down from 2.7% and core inflation from 2.3% and brings us to our ninth chart. we've smashed it today. this is the chart everyone cares about wages versus inflation, essentially inflation is now below wages. we've got real pay which is positive, which is a huge psychological point to make. but what does it mean for policy for the bank?

it may seem yes but does it change the dynamic when it comes to another rate hike this year? megan: the fact deflation accelerated is not shocking because there's a shift, it's because the pound dropped out of the year on year comparison. what is more of a structural shift is the idea that actually we're finally getting real wage growth and that could add inflationary pressure in the u.k. economy. we have one data point suggesting we have real data point but it too early to draw a trend. mark: is it a trend or not? megan: it's too early. it might be a trend actually but everywhere else in the world we've had trouble finding wage growth at all, especially real wage growth. but i do think if it is a new trend it could be inflationary pressure in the u.k. economy and the bank of england continues to be in this incredibly difficult spot where they have to support growth or fight inflation. now, they've chosen this year to side with the growth piece

which isn't an official part of their mandate but unofficially is will they continue to? that's difficult. we might get one more rate hike in may but think they're probably stuck. i would highlight the jobs data is pretty lag, backwards looking, so every economic indicator in the u.k. has turned over except for the employment data, the jobs data. for that to turn over, i'd say wait for it. mark: one of the more interesting developments was the former b.o.e. policymaker who released that research which showed unemployment has to fall to as low as 3% before wage growth picks up any traction. again, we don't have time to discuss that but you've got time to look at that story, david goodman has written a nice summary on the bloomberg. thank you all. megan, neville and david, they all stay with us. remember, bloomberg users can interact with the charles shown tvgo. gt

are we at nine or 10? i've lost track. stay with surveillance. germany's payday, public sector workers agree on a wage hike alerting more strikes in the country. we look at what that means for q and re of e.c.b. goldman posted the highest revenue in three years so what drove to the sell-off yesterday. this is bloomberg.

mark: this is bloomberg surveillance. i'm mark barton in london. just while i talk, i play with the chart. do bear with me one second. this is live television. german public sector workers

and employees agreed on a wage hike emerging the threat of in disruptive strikes europe's biggest economy. e.c.b. policymakers in the area finally on the rise helping to build a case for a gradual removal of a q.e. wind down. we'll get more data at 10:00 london time. avid, mark and megan are here. the inflation swap rate i haven't brought up for a long time, megan and neville. it's 7%. so inflation for the five years after five years. and it's interesting going back to define. the data today -- from 2009. the data today is not moving in a hurry to just below 2%, is

t? obviously, that problem is not moving and for the last few years give or take tens of basis points and that's a problem for the e.c.b. given they've attached their forward guidance to the performance of headline and core inflation. what's interesting is you take a broader look at the economy and a broader look at pricing and there is quite a lot of evidence that price pressure is building almost everywhere apart from the c.p.i. data so business surveys are reporting the companies are raising their prices faster than they have done for a few years. you've seen signs of wage negotiations picking up and even within the c.p.i. data themselves, there's evidence there perhaps some cyclicality is going on with factors like

mobile telephone calls and mobile education cost. you look at the overall economy growing rapidly and above trend at the moment and there's a powerful case for removing the emergency stimulus that's still very much in place in the form of q.e. and negative interest rates. mark: what do they do next week, do they tweak the communication or maybe they do that in june and there's no need next week to say anything different than last week when they drop the easing bias? megan: they'll probably wait until june. italy doesn't have a government yet and that remains a risk so they might as well wait until june and figure out what's going on in italy and hopefully by then before they signal what they'll do about accommodation. there's a raging debate whether they end q.e. in september or december, it doesn't matter that much. if they wait until the end of the year they'll taper it so we'll have much smaller bumper inches but i think they'll end q.e. this year and move to rate

hikeses next year. mark: the bond market, neville, through 2018 is? neville: you have to see yields on the front end and long end rise quite a bit. if the e.c.b. will take rates away from negative rates, i agree with mailing annex year the german two year yields minus 60 basis points don't make sense so i think you'll see german yields rise increasingly and the bund yield get up to slightly 1%. mark: we're discussing rate hikes but it was told they'll do 20 points on the rate and there was some pushback. when will they start and b, how will they start? will it be 10 or 20? how will they begin the rate -- we're talking rate hikes in the euro zone but let's do it. megan: been a while since we last discussed that. i think they'll probably try to get a rate hike off the end of the first quarter of next year. mark: that's a bit earlier than the consensus, isn't it? megan: it's because i don't

think inflation covers will come in but remain slow across the developed world. i think they'd like to get out of negative read territory for sure and start hiking rates because in the next downturn, once they end q.e. it will be hard to start it up again particularly if there's a gernat the helm of the e.c.b. next year which is still unclear but possible so all they'll have to play with could be rates and if they've still got rates in negative territory, we know for sure a recession is coming at some point in the future they don't have much room to respond to that at the moment and they'll try to get rates up sooner rather than later as long as it doesn't royal the markets or disrupt the recovery. mark: when do we worry about draghi's replacement, doesn't have to be a draghi light, one final comment each. neville: i hope it's not jen because the policies he talked about, if implemented would be

disastrous for the euro zone economy. if we get a more hawkish e.c.b. president we'll be taking the reins at a period the policy reins will need to tighten and will feel continuity. megan: i think videman is not as german as he sound as head of the bundes bank. and if not him it will be some other northern european hawk so either way we can expect a more hawkish e.c.b. mark: thanks for coming on. megan and neville. remember, bloomberg users can interact with the charts shown using gtvgo with the charts on bloomberg to catch up. analysts save the charts for the future. i have no idea how many we do, 10 or 11?

we smashed it. we weren't even going to bother today. goldman irks the market and posts the highest revenue in three years. what drove the sell-off in yesterday's session? this is bloomberg. ♪

mark: still looking at charts. economics and politics, this is bloomberg surveillance. i'm mark barton in london. let's go to taylor riggs in new york. taylor: a deal would have created u.k.'s biggest shopping mall owner. hammerson's initial bid of $5 billion had come as shopping owners try to combine and cut costs on premium properties. the decision was announced days after the pursuit was canceled and would have created one of the largest retail property owners in europe. total has agreed to buy almost 75% of french utility direct energy for 42 euros per share and total will file the same price per share offer following completion of the $1.4 billion euro deal and represent as 30% premium to direct energy's closing price yesterday and

will add electricity and natural gas supply to total's core oil business. i.b.m.'s one quarter growth streak is already in doubt and shares fell in extended trading after reported narrow profit margins and no revenue growth, excluding growth from a weak u.s. dollar and cast a shadow over an effort to sell more profitable cloud based software to revive growth after five years of revenue declines. and starbucks is closing more than half its stores in the u.s. on may 29 for an afternoon of bias training and the move comes as the coffee giant scrambles to restore trust after the arrest of two black patrons in a cafe in philadelphia. according to bloomberg calculations it could set back revenue y at $24.2 last year about $7 million in lost sales. that's your bloomberg business flash. mark? mark: thanks a lot, taylor. let's talk financials, goldman

sachs shares raising yesterday and marty chavez speaking on the first quarter conference all. he faced queries about marketing expenses and was pushed for a breakdown of spending on tech which he declined to provide, the core came as the bank posted. the biggest fixed income jump on wall street, fixed income revenue jump on wall street. >> we remain cautiously optimistic many of the solid drivers depending on a solid start, healthy economic growth and relatively positive investor sentiment and the emergence of new market trends can remain in place. mark: more with danny berger, why, what was it within the goldman sachs report the investors didn't like. >> it feels like looking a gift horse in the mouth and other banks couldn't keep up in the area and still it sold off. three explanations, one, it looked good but investors are

saying show me more, i'm not going to believe it, maybe it's a peak. number two would be the c.f.o. did say they weren't having buybacks in the next quarter. and the main reason i really think people are missing here, you know i like to look at the macropicture and we were talking about this chart just now is that yield curves are flat. mark: look at this chart, umber 11859. this is the q-2. dani: this is not good, very bearish for banks. regardless what earnings are if this is the picture you won't want to buy banks in this environment. mark: what were the upsides? everybody did well in equities during this earning season so far and was the big fixed income winner, wasn't it, among the big east. expectations were high going into this but still competed expectations. on the equity front it's interesting because we always

hear the strange question they like volatility but is it the right volatility and is it the kind of volatility that sudden spikes and scares investors but because 38% increase here for a lot of the banks have this number but showed this was good volatility for them. the question becomes as we've seen the vix fall sustainably, is that the sample? mark: what are we looking out for? dani: if they miss on equities -- mark: you were talking bank of america survey relative to earnings expectations, what is that telling? dani: this is a monthly survey and was really interesting this month because we've had an incredible increase in earning expectations, the biggest first quarter increased by analysts on record. still, this is a survey of money manager and they think we're at a peak here. about 40% think the equity market will peak in the second half of this year and think

earnings are to peak and quite a difference between what money managers and analysts are saying. bloomberg, erger on cyril ramaphosa joins us for an interview at 1:30 u.k. time. we have a few second today to look at the markets. stocks are rising in europe and gaining for the fourth day in five highest since february 27 following the asian hidta followed by the curious start. banks might not agree, chinese bond rallying after the central bank moved to support liquidity. ftse is up, inflation coming down a day after wages grew at the u.k. in the highest level in three years. we have real range growth. this is bloomberg.

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faces pressure from the house of lords. morning, this is "bloomberg: surveillance." i'm francine lacqua in new york. at the imf world bank meeting. tom, you have a great panel. forward to hearing more on the back of what we heard from the new york fed president and we look at markets and geopolitics. "bloomberg markets: the european open it will be a great -- tom: this morning, robert will be a number it will of days of conversation around see out ofon that we

washington and as you mentioned in your opening, tpp is the shock of late last night. francine: and the new forecast released yesterday. let's get to the first word news with taylor riggs. taylor: there was worry -- word met with kimpompeo jong-un. according to people familiar, pompeo met with kim over march 31 to prepare for a possible summit with president trump. it could take place by early the or before carried administration says it is considering imposing more sanctions on russia. larry kudlow said the u.s. ambassador to the united nations got ahead of the curve. haley said sunday new sanctions would be announced the next day. investigators have found evidence of metal fatigue on the engine that exploded on the

south west airlines jet. one passenger was killed in the first in-flight fatality in the company's history. the flight made an emergency landing in philadelphia. former first lady barbara bush has died. she was 92 and was the wife of one president and the mother of another. mrs. bush was in failing health and decided not to seek medical treatment any longer. her son, former president george w. bush said his mother "kept us laughing till the end." 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, tom? bonds,uities, currencies, commodities, markets on the move. a lot to discuss with futures considering their assault.

a much flatter yield curve off the rise in the two-year yield, almost as vix, pre-february vix. 15.1 and there is brent, 72.06 a barrel. i'm looking again, because shinzo abe is meeting with donald trump. i am looking at euro area inflation. it has been revised lower. this is significant as the ecb prepares for its policy meeting. if you look at euro area inflation, accelerated less than initially to last month. do we have an inflation problem in europe? it is very much like the u.s. last year. it is slow to come up. let's check out euro-dollar. stocks in europe drifting higher following gains across asia. i should be at the markets in a second. investors also focusing on the earnings season, yen dipping a

touch as donald trump is meeting with shinzo abe. china's 10 year bond yield tumbled after the ratio for banks was cut. tom: you really did a nice job on that yesterday. it was an important announcement yesterday by the pboc. this chart matters when we see the u.k. inflation. the white line, the u.s. two-year yield, the yellow line the german two-year yield. boy, is there a divergence. i will get that out on twitter for radio london among others. we have the guest this morning to talk about that. francine: we do, and i have this chart, which i will push out on social media. this is on the back of the comments from the next president of the new york fed who says he doesn't expect the curve to invert. he says if it does invert, it is a powerful recession sign. this is the three-month tenure spread on treasury yields, as

soon as it dips below the blue line, it is inverted. we will put it out on social media. president donald trump has hinted at hopes of the u.s. reuniting with the tpp. hours after the two leaders met, trump sent this week. while japan and south korea would like us to go back into tpp, i don't like the deal for the united states. too many contingencies and no way to get out of it doesn't work. i laughed real deals are more efficient, comfortable, and better for our workers. look how bad the beauty of his for the u.s.. u.s. is for the brian, what does this mean for japan? up at abe is showing mar-a-lago. what does japan want from the u.s.? was a shock toet

people in japan. the two men met to talk about north korea yesterday and haven't even decide -- started to discuss trade yet. that took a lot of wind out of the sails of the japan side. prime minister abe sorely needs of it re-. his support ratings are plunging in the polls, his finance ministry is under attack, he needs to bring something back. it would help him a lot. francine: what does he need from japan -- the president need from japan? president has talked a lot about the trade deficit, and we had data today showing over the first quarter, the u.s. deficit with japan has not narrowed even slightly. that is a big problem, that will come up in their discussion today. prime minister on day has asked for a few things on his side. one thing people are talking about is the possibility of an exemption on steel tariffs, which would not be extent to for ae u.s., but would give abe

huge feather in his cap to bring back to tokyo. the i want to talk about shocking tweet we saw last night. group said south korea is not really involved in tpp. the president was misinformed on that, but i find the body language absolutely extraordinary. since when does a president of the united states have to give a hand pat to mr. abe of japan? how is that received in tokyo? brian: well, we look at photos -- the body language is huge. you see photos on the front pages of all the local papers and they tend to play up some of these strange gestures. my favorite one was after they locked in a handshake that president trump simply wouldn't let go and you can see prime minister are they trying to pull away and looking ashen faced.

i think that was memorable. the two have a complex relationship, one of power and appeasement. tom: this is absolutely extraordinary. we are mourning the past of -- passing the barbara bush. her husband was hauled out of the ocean at midway, and all of the emotions spanning over decades. what do the people of japan think of their leader being fawned upon like the present ash by the president like this? they thought prime minister abe got off to a great start of managing his relationship with president trump, and that has deteriorated kind of. at he is a sense here th didn't get a lot out of that. he did a lot to boost president trump's ego and hasn't had any reciprocal treatment as far as we can see. that is on the mind of the japanese citizen.

when will we see the payback? francine: on another subject, the cid -- cia director mike pompeo may have traveled to north korea a few weeks ago to meet kim jong-un. what is being said on the ground on the? -- that? brian: that is monumental, unprecedented to have a u.s. official of that stature go to pyongyang to meet with the leader of north korea is astounding. developments on that front are accelerating. as you said earlier, we expect to see a summit no later than early june. the big question is venue. we have a list of nine. we have seen headlines of north korean diplomats traveling to places like oslo and stockholm, and that is a fairly rare thing for them to be doing these overseas trips. we are looking at those three of leading -- as leading contenders. francine: brian fowler, a bloomberg managing editor in japan.

york, joined from new great to have you. >> good to be with you in the same locations. francine: can you trade on the back of a tweet from president trump? on the back of information that mr. mott -- pompeo may have been to north korea? >> i think there is so much policy confusion in washington, .s tom referred regarding tpp two days ago, we were optimistic on tpp, then the economic advisor said it is more principle rather than a move toward tpp. now the president has bashed tpp soon after being with prime minister abe. is almost random as to whether you will get money or lose money because nothing stands for any length of time. i know all of our viewers

and listeners want you to update your call on gdp. in general, is this as good as it gets? : you hand ii-kumar have talked about how the growth will be sustained. i think especially with the two to tenure spread today and yesterday, it is at 842 handle in terms of basis points and the five and 30 is a 32 basis points. if the fed even increases a couple of times more, let alone three more times like they have said, they are going to invert the curve probably within the next six months, making the reality of a recession in 29 -- 2019 that much important to consider. my answer is i don't see any reason to change my views. the bond market is increasingly suggesting that my pessimism on

growth is warranted. tom: we have to come back on this. it is a thrill to have you with us. robert horne back is joining us later in the hour. later in the morning, a timely conversation with a former chairman of the federal reserve system. alan greenspan. alan greenspan on the ecb and draghi, but more than anything, alan greenspan on our trillion dollar deficit. this is bloomberg. ♪

heineken got a boost from beer sales in asia in the first order. the world's second-largest less thand 4.3%, expected. strong demand for the tiger brand has offset the impact of cold weather in europe. tesla will begin round-the-clock production of its model three. ceo elon musk told employees in and in a mile -- gmail the carmaker will try to build 6000 sedans by the end of june. tesla needs revenue from delivering more cars to customers after spending billions in pre-manufacturing capacity. that is your bloomberg business flash. it will not be the major --k of these imf meetings you never know what it will be by thursday, but it is a parlor game right now of economics. four ratings,o

others disagree. william gross, janice henderson was heated in a recent conversation. maybe one at the most, two more rate increases. , whous, komal sri-kumar agrees with mr. gross. why this consensus have it wrong on the fed? komal: are you talking to me? tom: i'm sorry, i called you bill. why do they have it wrong? komal: they have it wrong because the fed can go one of two ways. one is to raise three more times, meaning four times this year. causenvert the curve and the recession, or they provide you with the power foot and do not increase that much. they back off, and the example of that is september of 2015 hike atuch bigger rate

the jackson hole meeting in august 2015, they did not go through with it. thequestion is, which of two, if it backs off, i think there is a chance that just as the stock market corrected in 2015, investors will think, what does the fed know that we don't? whether they do it or don't, they are very much in a bind right now. tom: one of the great things is communication. these spring meetings, transparency and communication is the religion, if you will. are we harmed in that we have a fed that only communicate by press conference every other meeting? komal: we would be better off if the fed did not give you forward guidance, because it is generally over the past several confusing in terms of what they say and having to back off at different times, examples being the temper tantrum in 2013.

we have it issues of increasing interest rates and backing off from it. i think they would generally be -- sometimes, i think the alan greenspan version in the 1990's of being relatively quiet and the markets can figure what the fed is doing by its actions, rather than by press conferences. francine: in fact, tom will speak to alan greenspan later on. if you listen to what we heard from the new federal reserve -- heo john williams spoke on bubble risk, what you think is more significant? sri-kumal: i think the trade related points he spoke about and the fact that he does not expect the two to 10 year to invert, those are the most

important considerations. if increases go through between china and the united states, it ratesng to reduce growth quite sharply, weaken the dollar and dollar that is going to lead to the two to tenure inverting that much faster than otherwise. , i can seeterrelated how there were is pessimism on the trade front but optimism on the two to 10-year, they are inconsistent. francine: komal sri-kumar nejra: --komal sri-kumar is staying with us. this is bloomberg. ♪

♪ francine: good morning, this is "bloomberg: surveillance." theresa may's version of brexit faces another threat. her flagship no returns to the u.k.'s unelected upper chamber today where lords are seeking to amendment. we are joined by david merritt. with me here in the studio is komal sri-kumar, still with us. theresa may has it from all sides. a tough time from the labor opposition, a tough time from within her party, and now the lords are trying to influence

this brexit bill. that's right, she has another big fight on her hands over this issue and we can expect this to be the big fight over the coming months and the summer over this issue, about whether britain wants to stay in the european union's customs union. we know the labour party -- to stay within the customs union. . customs union businesses want that to happen, the european side is keen for it to happen to facilitate trade for goods across the border. he saw the question of the northern irish border, which has been a huge problem and still with no solution inside. it is one of mrs. may's so-called red lines because people advocating for brexit say if you are in the customs union, you cannot negotiate trade deals with other countries, places like india or china. that is one of the big premiums of brexit rubbed out. we are expecting the loss of the vote in the house of lords this afternoon.

then, the real fight will come later in the commons. will she changed tack or will she have to give in to this demand that one of her big policies get changed? gives intohether she the house of lords or possibly to parliament for the house of commons, or whether she listens to the factions within the conservative government such as boris johnson meant that want to hard out. and people like boris johnson have been very forceful in saying we have to leave the customs union. last few months, we have seen that wing of the conservative party really grow a little quieter. we saw them excepting some of the more blurring of other red lines -- things like the court of justice, like are they reeling to -- willing to bring down the government on this issue? theresa may has a tenuous grip on power and they are running a my door to -- minority

government. if the government falls, we have the election of jeremy corbyn or labor. that may mean no brexit at all. do the hard brexiteers want to push the issue? is it that important to risk the entire project of brexit? francine: david merritt joining us, we will be back with komal youkumar and i will ask more about this chart, u.k. wage growth. we talked about it yesterday. inflation in the u.k. picked up and if you look at european inflation, the opposite direction. we will space -- speak with blackrock's managing director. this is bloomberg. ♪ this wi-fi is fast.

i know! i know! i know! i know! when did brian move back in? brian's back? he doesn't get my room. he's only going to be here for like a week. like a month, tops. oh boy.

wi-fi fast enough for the whole family is simple, easy, awesome. in many cultures, young men would stay with their families until their 40's. tom: good morning, everyone. "bloomberg surveillance." from our studios in new york and washington, francine lacqua and i'm tom keene.

about in terrific international relations flows. we need to get a briefing. with your first word news on north korea, here's taylor riggs. cia director mike pompeo has made a secret visit to north korea for an unprecedented summit between president trump and kim jong-un. pompeo met with kim over the weekend of march 21st. president trump has changed his tune on the transpacific trade partnership. trump told officials to explore returning to the tpp and now says he does not like the deal and that bilateral agreements are more efficient. president trump discusses trade today with japan's prime minister. taxpayers have been given another day to electronically file their tax returns. that's after a computer

malfunction disrupted the internal revenue service is website. the irs says it's processing systems are back online and the new deadline for filing is today. opec and russia meet in saudi arabia this week to discuss how to keep a global oil glut from returning. the worldwide surplus has all but disappeared after months of production cutbacks. high of led to a -a barrel.e $30 of i'm taylor riggs. this is bloomberg. tom: thank you so much. greatly appreciated. if there is anyone who has done andinternational relations the track of marco polo, that would be robert hormats. he has spent years working on both sides of the aisle with our

international relations and he observes now with us a most formesting and original policy of the united states. wonderful to have you with us right now. what would your advice be to mr. pompeo in terms of the speed of change we see here? it's a remarkable story this morning of north korea. what should be his next step? robert: his next step up to be to first of all make sure we have all of our friends and allies in the region working along the same lines to avoid any problems or disputes or open confrontation between japan and south korea on how we deal with the north. our alliances and friendships are very important. second, don't expect immediate progress. these meetings of heads of state do not normally in themselves solve problems. they can set the stage, but a lot of preparation is needed and pompeo's visit as part of that.

they need to be put together. as we have seen with the nuclear agreement with iran, put together by experts with verification with real clarity as to what coming next -- is coming next and who will do what. third, there needs to be transparency. the american people and the friends and allies of the events united states need to understand why we're doing it. we need to be very clear before we go in and afterwards as to exactly what our objectives are. tom: ambassador, the wonderful new book, "the return of marco polo," emphasizes realistic international relations with what you have lived with mr. kissinger and the others. if we need a realist foreign policy, there's the book right now. i cannot say enough about this, folks. what is the realist policy this

president needs to learn? robert: the realist policy is that china is a real competitor and a very effective power in the region. we may have differences and we do have differences with the chinese, but we cannot deny their economic power and influence, not just in the region but increasingly globally , the fact that they are going to be playing a greater political role in east asia and indian ocean and other parts of the region, and that almost everything we do in the world is going to require working closely first with our allies. we cannot underestimate the importance of maintaining alliances. ther world war ii, alliances were critical to the rise of the u.s. as a great power. we cannot abandon them or weaken them. as we do that, we have to work with the chinese and figure out a way of doing things that understand at least where the chinese are coming from even if

we don't agree with them. we need to understand them better and have a process. it has to be a consistent process. the chinese come well briefed to the meetings they attend. they have very senior people. ae vice president has enormous experience dealing with the united states on economic issues. strategy thate a the american people understands. we cannot be zigzagging back and forth. that won't achieve results. it convinces the chinese that we don't have staying power and makes our allies in asia doubt are staying power, which is very critical because the chinese would like to divide us from our allies in the region. francine: we saw a few weeks ago when there was a rendezvous with andchinese in the koreas they spoke to th north korea as well. if there is a closeness between

the u.s. and korea, president trump sees it as his win. does it embolden him in the trade war's? this china come closer to the u.s. so they do not feel left out? komal: there's a lot of tussle here. when you look at what happened when president trump indicated he wanted to meet with kim jong-un, that is when you have a secret train trip by him going into beijing for the meeting and we did not know about it until the meeting had taken place. so clearly when that happened, the united states got left out and it was china dealing directly with north korea. the issue is that president trump keeps saying, as he said yesterday, that he gives his blessing for a south korea approach. ment. they are going ahead without the u.s. blessing. the world is changing and the ae united states needs

have a positive play and consistent foreign policy. we have seen many changes in the last two or three days. orcannot swear from one side the other whether we want to be close to korea or not, close to japan or not, and that's what's very important. francine: when is the last time the u.s. spoke with north korea? wd it's not spoken as a trump in. robert: it's taken as a procedural win that we are talking to them. the question is what we are talking about and what is coming of it. e easy part.ha we talked to the iranians for many administrations. we did not reach an agreement. we did reach an agreement under the obama administration. leastriticized it, but at there's a solid agreement, which by and large is better than not having one. you need to have some sense of what you're aiming for, what

your strategy is. in terms of the north korea relationship, what the north may have in mind for what they call denuclearization of the peninsula may be very different from what we have in mind. it may be that we cannot provide a nuclear umbrella for our allies in the south. it may be that they want us to pull back all of our forces in that whole region to avoid looking threatening. there may be a whole range of things that kim jong-un wants in terms of the language that sound good to the naked eye, but on the other hand, when you look at them in detail, they may be very different from what we want strategically or what our allies want strategically. komal: the key issue on denuclearization is if we just say we will not talk to kim jong-un unless he gets rid of all those nuclear weapons, he is eventually weakened phenomenally. he has no claim on power and can be easily overrun.

thequestion is whether united states and north korea can reach an agreement that kim jong-un can literally live with. robert: survival. that's his main concern. im: along with this theme and want to be sure that we get to our new and original fiscal policy here in the time that we have with you this morning, but to stay on international relations as well, richard said the other day that he would not serve with the trump administration. can mr. pompeo do the cell job to get the state department full again? can mike pompeo get the bodies in there that we all know we need? robert: that's a great question, tom. the answer is he has to if he wants to be an effective secretary of state. he has to be an effective ceo. you have to have your top jobs filled with people who are notrts and have the respect

only within the state department but throughout the community in washington and elsewhere. he has many jobs to fill. he has to go quickly to identify good people, which was not done in the previous administration and the state department, and get them in line because he needs good advice if we are going to have a complicated negotiation with the koreans were on the korean peninsula. and we have to carry on what we are doing in syria. we need to have top people and people who can deal with these crisis points. the secretary of state cannot do it alone. the president cannot do it alone. the role of the national security council is to provide a conduit for advice from the state department, the defense department, and other agencies. it's not to negotiate these deals. they viewed the agencies to play key role in doing that as in the iran deal. staffing up with good people at figuring out a process with making long-term strategy and not just transactional deals, but long-term strategy.

the state department has to play a role in that. it needs to work with general mattis and others to do the same thing. process, good people, strategy, and avoiding ad hocism and inconsistency -- though should be his major goals. francine: they are both stay with us. talking with are the managing director of the european civilian mechanism. we will be talking about mpls and european banks. that's at 630. 6:30 a.m. in new york. this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine from washington, d.c. for the imf. steve mnuchin says trump has delivered a warning shot on the yuan on the same day that china adopted a care and stick approach with trade talks with america. beijing promised carmakers greater freedom on their market and on the other left anti-dumping duties on imports of u.s. sort of. ghum. bob, you are a little bit of a china expert. break, youing the take issue with the fact that the u.s. administration is now saying something that the chinese currency did, which has intervened to weaken it, which it clearly hasn't. robert: i been going to china since 1972. the currency has always been a

big issue -- not always recently at least -- in terms of the american rhetoric about china. let me make two points. -- it is overblown in terms of what we should be focusing on. we are going to focus on it, we've got to get it right. the chinese are not pushing the value of the currency down. they have been allowing it to rise for two reasons -- not just to placate the the united states -- the united states, which the press rights to feel better about, but for capital to flow in. if it's decreasing, it's incentive for people to invest in china. they want foreign investment of a certain type to come in. the second big issue is not so much the currency rates although they are not unimportant, but they are not the dominant issue. the dominant issue is the restructuring of the chinese economy. we were talking about this during the break and i think we both agreed that the real

question for china and for us is are they going to restructure? are they going to continue the opening process? are they going to work with the united states on these technology-intellectual property kind of issues? 2025have this policy china to strengthen biotech, strengthen autonomous vehicles, strengthen ia, all these kinds of things. they want their companies to play a more dominant role, but they still want foreign investment to come in. americans understand they are not going to come in if they are worried about piracy of intellectual property. that is really the technology area, not the tariff area, but the question of how the work together on new technologies to encourage american companies to come in? for american companies, to feel they can come and comfortably and not worry about the intellectual property. francine: if it was only ip,

they would have support of the europeans. robert: that is where the alliances come in. that is why pulling back from tpp was a bad idea because that had strengthening elements for intellectual property and for other things that would give other countries as sense that they are working with the united states on this issue, not against china but globally. francine: going back to the currency point, china is doing this as trying to balance this wholly-owned -- holy trinity. then they have the problem of the u.s. talking about traded tariffs. can they handle all of it together? komal: i think the chinese are trying very hard to handle the risk off approach that we are taking. the fact that chinese debt has increased substantially. if you include the shadow banking activity in china, it is now estimated that over 300% of gdp, which is extraordinarily high, and a bloomberg chart

looking at how the shadow banking activity has increased suggests that we went from less than 5 trillion renminbi in 2008 to over 30 trillion today. it is a big move. what they are trying to do including with the cut in the rousseff acquired -- in the required reserve ratio is to make sure the debtors are not affected. united states the take too strong of a position against china and the chinese are forced to react to it, then you have a debt crisis and the equity market is evidently not going to benefit from a collapse of the chinese debt system. the world is very interrelated and you need a lot of steps to be taken and coordination rather than the competition. the other point i would make is that u.s. treasury secretary is going back to 1995 and have emphasized the exchange rate. to me i would give up talking

about the exchange rate completely and focus on opening up the markets as bob said and making sure that's being done. inn china came to the wto 2001, the emphasis should have and on opening the market totally setting aside considerations of the exchange rate because we have wasted more than 20 years of time doing that. and let's come back on this the theme to boost u.s. exports. an important conversation as we begin these meetings in washington. all that surrounded by the gods of the butter. we will talk to robert and s r-kumar coast-to-coast. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get the bloomberg business flash. shares of ibm are lower in premarket trading. the technology company reported first-quarter gross margins did miss estimates and no revenue growth. that raised questions about ibm's drive to sell more profitable cloud-based software to revive growth. facebook is starting to comply

with new privacy rules in europe. the social network says eventually it will provide the same protection to all 2 billion of its users. those in europe will be notified this week of some of the information they are now sharing. they will be asked whether the they want to keep it on their facebook profiles. that is your bloomberg business flash. tom: taylor riggs, thank you so much. it's an interesting note that are gentlemen and gentlewomen of foreign policy and international relations always look back to a nation's debt animations deficit. -- animations deficit. robert hormats has spent decades interested in our burgeoning debt and deficit. he is the author of "the price of liberty." the price of liberty is he better get your fiscal house in order. our good colleague stan collier says the goal is to get down to a trillion dollar deficit.

can we have a navy that shows a flag in every port with trillion dollar deficits? robert: this is a big challenge because of two things. it looks like in washington they have taken their focus completely off the debt currently. and then the debt is going to continue to rise. that baked into the cake it is going to continue to rise because they don't seem to be any constraints on spending and now that you know one another tax cut in some cases. as rates go up, the servicing costs of that rising debt also grows. you have two negatives in terms of medium and long-term debt of the united states. now, butso far from debt service is going to be higher than the money we spent on the military. debt service crowd that money that is available for our military and for many other purposes. d of time,er a perio

when interest rates rise, it makes it harder for companies to borrow and municipalities, which are supposed to be the bulwarks of new infrastructure. and makes it hard for them to borrow. tom: very importantly the congressional budget office ri-kumar look like s plug-ins. we're not going to do this with our gdp, are we? komal: no and that is what is coming through again and again. but oficit may increase, the deficit increase is not going to productive channels and there are not structural adjustments in the u.s. accounting -- economy to take in an increased flow of labor and immigration skill workers from abroad, you cannot get the 2.8% to 3% even with a big increase in the fiscal deficit. if the deficit starts to affect the u.s. economy so much that it did hers foreign capital inflows

-- detours foreign capital inflows, then after a long time i may have to change my expectation of lower vol because of the impact of deficit. tom: let's come back. they're really going to roll right over into the next hour. we do that with francine lacqua and tom keene beginning our coverage of these importing meetings of the international monetary fund and the world bank. lots to talk about. we will be joined in the next hour and he will be with us at the imf on an exceptionally important and timely panel on trust and resilience. we do that next. this is bloomberg. ♪ welcome to the xfinity store.

i can tell you about... streaming the most free tv shows and movies on the go. yeah, and... xfinity internet. it's so fast! and you can save by... by getting up to 5 mobile lines included. whoa, you're good. i'm just getting started. ♪ simple. easy. awesome. come see how you could save $400 or more a year

with xfinity mobile. plus ask how to keep your current phone. visit your local xfinity store today. ♪ tom: this morning, day after day

, the risk on trade forward with the curve higher. does it signal make global gdp great again or is this as good as it gets? late night tweeting could the president goes bilateral. the president is not confused. tpp as well off and then it's it's back off again. four blocks west of the white house, showing trust and resilience. ingales ofur, luigi z chicago. we are live from our studios in washington and new york. i'm tom keene. francine lacqua in london as well as we dive into are important coverage. francine, what are you going to be focusing on in washington? francine: we will be focusing together on a lot of the emerging markets. i know we have some great lineups and we will be speaking on south africa, the economy. what i want to focus on is where

treasuries go next. we had a very important appearance from the next president of the new york said and he does not expect the yield curve to invert, but i think we need to break it down to some of the things he talked about and ask all of our guests at the imf what they think. i'm looking forward to your conversation with alan greenspan. tom: part of that is due to a slowdown in europe that we have seen recently. that will be an interesting theme as well. here's taylor riggs. director mike pompeo made a secret trip to north korea to meet with kim jong-un. according to people familiar withthe matter, pompeo met kim jong-un over the weekend of march 31 to prepare for a possible summit with president trump. it could take place by early june or before. the trump administration says it's considering imposing more sections on russia. larry kudlow says the u.s. ambassador to the united nations, nikki haley, got ahead of the curve by discussing them publicly.

she said new sections would be announced the next day. investigators have found evidence of metal fatigue on the engine that exploded on a southwest airlines jet. one person was killed, the first in-flight fatality in southwest history. boeing 737 was flying from new york to dallas and made an emergency landing in philadelphia. former first lady barbara bush has died. she was 92 and was the wife of one president and the mother of another. over the weekend, a family spokesman said mrs. bush was in failing health and decided not to seek medical treatment any longer. her son, former president george w. bush, said his mother "cap is laughing till the end -- kept us laughing till the end." global news 20 for hours a day and tick-tock on t twitter powered by 27 journalists and analysts in more than 120 countries, i'm taylor riggs. this is bloomberg. tom: thank you so much.

really the trend continues toward a higher to yield your curls -- two-year yield curve flattening. we will go with 42 basis points on the 210 spread to get your attention. looking at that grind ever lower oilrd inversion with elevated. and the brent crude with the vix . francine: seems to be extending gains into their day. looking at #thing. the euro briefly dropped on disappointing inflation data. zero,so looking at swiss which we will bring up next time. weon't do it very often, but were looking at the chinese 10 year yields. you can see currently at 3.499 on the back of what we heard

being caught on the back of banks and yesterday. tom: very good with yields lower .n china this morning this chart matters and it shows the divergence before the imf meetings with the u.s. yields vaulting higher and the german yields still lower. of course, that important inflation data that we saw an hour ago really indicating a continuance of that transatlantic divergence. francine: this chart matters to me and to a lot of people watching. we will push it on social media for our radio listeners. it goes back to what we heard from the president of the new york fed. he does not expect the curve to invert. we looked historically at when the curve did invert and you can see it every time it drops below the blue line we will push it out on social media. he talked about trade and the possibility of a rate increase. we will bring that later in the program. tom: let me do a morning must-read right now to get to mr. cirelli.

if you go to bed in washington, what will you be greeted with in the morning? now washington post" right -- with all due respect, i don't get confused said the lady from the united nations. ms. haley is effectively saying the trump or the white house did change their minds. they're increasingly tough posture on russia has at least momentarily then arrested. i argued monday that perhaps trump just decided to exert his authority even if it made his administration look ou nmoored. beneath the fold, thank god. hannity status rising as shadow chief of staff. this sinceen doing day one of the trump campaign. have you seen it as a real the last 48 -- surreal the last 48 hours? kevin: i cannot predict this a reality of it anymore.

i spoke with a source close to the white house who works on the communicative strategy and i said, what is going on between ambassador haley and president trump? but my source said is that essentially there has been some tension mounting because a lot of folks are looking -- for the white house's perspective, they are looking at ambassador haley as what is her long political game? she is, as we reported on, right or wrong no matter what she thinks has definitely asserted herself in really crafting her own type of longer-term political strategy at the un. tom: we don't know our tower what's going to happen next. you think of chiefs of staff and i mentioned the comedy. we covered it with "the washington post" and mr. hannity a fox news. a present have chief of staff. kevin: i was mentioning this to sources a couple weeks ago.

when the notion that folks were getting out in front of candidate trump happened, and you think of the senior advisers at the time, that paul manafort would be brought in as an adult the room to mature the campaign. that lasted a week in the new cycle because the candidate got frustrated. that same rhythm of general kelly being brought in as an adult in the room, arguably one itld make the case that frustrated the president and he successfully got out in front of that. tom: we were privileged to have salary from tokyo with us. the body language of the president at mar-a-lago with the leaders from japan. it is almost that he is removed from any foreign-policy cadence. everything is in the tweet last night is a deal. is that still the way it is? kevin: yes. yesterday i was up on capitol hill staking out the meeting between director pompeo, the

nominee for secretary of state, and the centrist democrat from west virginia. and now we get word that director pompeo might have been in north korea behind-the-scenes. even more broadly, the big foreign-policy take away and the molar take away -- and we have been talking about this for the senateuple days i'm a majority leader mitch mcconnell saying publicly yesterday for the first time that he is not going to consider that bill that sent to make it more difficult for president trump to fire director mueller. that is a huge development because speaker ryan has said that and the senate majority leader, which suggests that republican leadership in congress is still very much backing this president. francine: kevin, thank you very much. still with us is all formats -- robert hormats. we're listening to this and covering it day in and day out that the president is with his staff and also foreign policy. is he completely changing the way we do diplomacy? robert: well, yes, in several

respects. there does not seem to be an orderly process for making policy. the president can make policy any way he wants, but traditionally presidents have sought the benefit of advice and orderly process for considering various options and then agreeing on the options with his staff or deciding on a different course, but a course nonetheless , some kind of course and some level of consistency. the allies want it to help them figure out how they can work with the united states or they want to oppose the united states, they can do that. great powers cannot afford to be misunderstood. we are great power and if we want to remain a great power, we have to keep our allies open to our conversations with them and not change her mind all the time, which throws them off. and then our competitors take advantage when we change our mind and say the americans have no, course of action -- common

course of action/ . work with us because we have some study course of action. francine: is it difficult to have some sort of loyal staff? because if you have good staff and they feel they are not listen to and you agree with them today or disagree with them tomorrow and undercut them publicly, it undermines their credibility as negotiators abroad and it undermines their willingness to really put out for you if they think they are not being listened to or they think they are being dissed in the next comment you make. it is not good for the president to have this happen because he needs good people to be loyal to him and needs good advice. it's hard to do an environment where people feel they are not listened to. tom: there are so many different things to talk with you about this morning, but i really have

to ask. i hate to use this phrase. i really don't know if it's respectful, but i guess we had a charm offensive by the new royalty of saudi arabia. how do you respond to a crowd prints on a goodwill tour? robert: at the contrary interesting. -- i think it's really interesting. --hink the crumb prince crown prince has a really interesting understanding of the changes in his country. a lot of younger people want new opportunities and want to be part of the global economic order. they want to be able to travel more abroad. they want to interact. i think that what he is doing a abroad is important to help strengthen his in with younger people in saudi arabia. and thend part of it more obvious part is that he wants to work with and identify partners in the u.s. business community and financial community and elsewhere and help saudi arabia get a much better

image in the united states than what it has in the past as a progressive diversifying country rather than the country that is more inward looking. i can see why he is doing the strategy. it is very unusual. kings of saudi arabia virtually never do that. they have one visit to washington and that's it. he is of the new generation and it's changing. i think by and large his exposure to america is giving younger people a voice and it's probably a good thing. francine: he met with mbs and london. is he here to have influence in the u.s.? is it almost like a lobby he wants to form or was he here to do deals in the u.s.? robert: i think both. i think you would like to do some deals because he understands trump wants deals and wants the saudi's to buy things and that's a way of creating jobs. it's also a way of expanding saudi influence, not just saudi

influence although we just saw them doing that, but also strengthening the hand of saudi and other countries on the sunny side of the gulf vis-a-vis iran. that is one of his domestic and regional foreign-policy goals as well. he's a pretty sophisticated guy. he is doing a good job. it's not without a certain risk because there are some people in saudi arabia who want to take a more cautious point of view. he thinks he has the went to his back. that arably he sees spring was really initiated a lot by younger people who were dissatisfied and he wants more diversification, better jobs, not just dependence on oil. they want to keep oil prices up high because that's a big source of their revenues. francine: becky so much. that was robert hormats joining us this morning. coming up next, take more -- kate moore. we will also be joined by luigi

zingales. we will talk treasuries and, of course, brexit. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get the bloomberg business flash. in germany, prosecutors raided facilities in the investigation into diesel engine rigging. they say the probe is targeting three current and former managers. one is a member of the porsche management board. heineken got a boost from beer sales in asia and the first quarter. the world's second-largest process shipments rose 4.3%, slightly less than expected. for heineken's tiger brand in asia helped offset the impact of cold weather in europe. tesla will begin

around-the-clock production of its model three-putt ceo elon musk told employees that the electric carmaker will try to build 6000 sedans a week by the end of june. tesla needs the revenue of delivering more cars to customers after spending billions to increase manufacturing capacity. that is your bloomberg business flash. tom: thank you so much. i'm in washington today with francine lacqua in new york. we are focused on international relations and the politics of the moment, but there's also earnings season in the markets. with us in washington is luigi zingales and his definitive book on modern american capitalism. joining us in new york is kate moore. where an income statement -- in the income statement -- are you focused on nominal gdp and the spirit of revenue growth or do you go down the income statement

to cost-cutting and maybe sustained a better margins? what is it? kate: there's a ton of stuff. the top line and you will see which companies are continuing to grow the revenues. this far into the cycle, i think that's critical. of also watching how much slightly higher input costs and perhaps some percolating inflation is flowing through in margins. guidanceies are giving and expecting that to happen impact over the next few quarters or years. probably the most important thing i'm watching in earnings season -- and i think this is true of a lot of investors -- the guidance that a lot of companies are giving us. tom: let me have you become a fed expert here and do the work of others at blackrock looking at central bank policy. if rates come up, does that impinge on corporations or is that a signal of a buoyant and good american economy? which is it? kate: companies are not as

sensitive as they have been historically because of how they structured their debt. if we are talking to her three years from now and the fed has hiked consistently for the next eight quarters, there will be more copies that need to refinance and take on higher interest costs. as things stand, the large mega cap companies are not going to be sensitive. the big question is what happens to consumer and what happens to small and medium-size companies were coming to the market much more often for the. debt. francine: given the shifting landscape and monetary policy, how do you choose the right equities? kate: i would say this. even though the fed is continuing to raise rates and normalize policy, we very much believe that there is part of the liquidity still in the world and that many central banks, especially in the emerging world , are in a position where they can either cut rates or be accommodative. it is not our view that the ecb or boj is going to change their term tomorrow.

against that backdrop in what looks to be pretty strong growth and sustained growth, we feel good about equities and earnings. francine: do you go for stocks with high dividends or break it down sector by sector? kate: here's what i would say. a lot of people are looking at the previous playbooks in different cycles and saying in these environments really are getting slightly higher interest rates and strong growth and perhaps changing into a new regime, i'm going to go back to the defensive and high-yielders. we would suggest that does not actually work right now. investors need to think about which companies can continue to grow their earnings in this environment and be more creative about what defense the have in their portfolios. tom: the president with the leadership of japan in florida. here's the headline right now coming out of further festivities for the president as

he will greet the chancellor of germany, angela merkel, april 27. maybe they will have a secretary of state by the. and one of thes themes is the divergence of transatlantic divergence. we see two-year yields in germany do nothing even as we see higher yields in the united states. do you see a europe that is slowing down? is this as good as it gets for the eu growth recovery? luigi: i hope not. as kate said, the ecb hopefully remains more lax in the next few months because the growth in europe is good, but it's not exploding. the fiscal policy is much more restrictive. the united states has a much more expansive fiscal policy. the fed has to watch rates. in europe, not any risk of this happening. tom: measure for us the multilateral-bilateral tone of

the leader of europe, chancellor merkel. overnight, stunning tweet as the president regresses from wto, regresses from tpp after the cat and mouse game of last week. how multilateral does germany desire to be? luigi: i think that germany always wants not to appear to lead for historical reasons. they tried multilateral. francine: we saw that with the bombings syria. -- tom: we saw that with the bombings in syria. luigi: they are determining the value of the west and free trade and she will not be afraid to engage trump with this issue. tom: we go back to what kate was talking about, which is this new effervescence in the market. , saving capitalism from the capitalists. is that where we are right now? are you 13 years ahead which is the goal to save the economy

from the capitalists? luigi: i'm afraid to say yes i told you so. [laughter] tom: what is the number one thing we need to do to save capitalism from this gilded age moment we are in? luigi: one of the things we are exploring in that book and we were ahead of our time is this tension between the world in which the military powers and the ends of a nation are not necessarily the most efficient in the world. when the two things coincided, it was very easy to have free markets because the strongest and most powerful nation was also pushing for a level playing field because it knew a level playing field it would win. today the united states is not so sure they will win in a level playing field. they're less eager to have complete free market around the world and that is the tension that is worrisome. francine: going back to your world of equities, we still talk about whether globalization is dead or alive and whether it has

more to do with technological advancement or not. does it put m&a in jeopardy longer-term across borders? does it have impacts on equity valuations? kate: that's a great question. what do companies do when they are thinking about investing, acquisitions, forward-looking spending plans, and hiring where there is so much uncertainty about their trade partners and supply chain? that is when the reasons why i was mentioning before that i'm focusing on guidance and the tone from companies. we've heard some very cautious tones for mega cap companies that have reported thus we've heard some very cautious tones for mega cap companies that have reported thus far although they gave great earnings and guided to solid numbers throughout the balance of the year, but they expressed concern around growth and trade and future relationships. i worry that companies don't have an incentive right now to spend or invest even if the tax code suggests that would be a good thing simply because they don't have a lot of clarity in the future. that is something i'm really going to focus on. how do we measure that risk

appetite and how will that play into how investors and companies better? francine: if you are underinvested, you could see a spike in the price. is that i in industry you want to be heavily involved in? kate: we have to ask ourselves the question -- where is inflation going to be a bigger issue at which copies are going to have to take on higher costs if there is not going to be free trade? some companies are better insulated than others so that's going to be about taking idiosyncratic risks and being very specific. tom: within that and with the recovery of nominal gdp, are the mergers going to continue? are we going to have to find top linend grow up the merger so all the executives can get paid? boy, do i sound cynical. kate: you do indeed sound very cynical. with valuations coming down this year and earnings growth looking to be very strong prices have been really frankly uninspiring, we have been in a slightly

better evaluation environment for companies looking to acquire for companies or assets of other competitors. thatnk we will see more of but in select sectors. those companies that need to acquire technology or products or research in order to grow on a go forward basis. as i was mentioning a moment ago , we really have to ask ourselves do companies have enough confidence to engage in giant deals in the next year? e from blackrock and luigi zingales. one of the high points of our imf visit. this is bloomberg. ♪

♪ francine: good morning everyone, this is "bloomberg surveillance," francine lacqua from new york. let's get straight to the bloomberg first world news. mike pompeo has made a

secret visit to north korea to set the stage for a summit between president trump and kim jong-un. according to people familiar, mike pompeo met with kim over the weekend of march 31. the summit could take place by early june. president trump changing his tune on the transpacific trade partnership. president told officials to explore returning to the tpp last week. now he says he does not like the deal and bilateral agreements are more efficient. president trump discussing trade today with shinzo abe. meanwhile the top official in japan's ministry of finance will quit over accusations he sexually harassed a female journalist. --has denied the allegations just one of these scandals facing the ministry. live in another

day to electronically file tax returns after a computer malfunction disrupted the irs website. the irs says it's processing systems are back online and the new deadline for filing is today. global news 24 hours a day, powered by more than 2700 on air and on tictoc on twitter journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. tom, francine? francine: six weeks in and the italian president has yet to install a new government. he is setting deadlines for the speaker. in a meeting this morning, requesting that the speaker find out by friday whether a center-right alignment and the five-star movement can form a government. our guest, luigi zingales suggests the political crisis could be worse than brexit. ofll on with kate moore blackrock. can this take another six

months, seven months? what does it mean for reforms? luigi: i don't think it will be six months but it will be a long period. there is an impasse. the natural alliance is between the center-right and the five-star movement. the five-star movement makes it theecondition that president is out of the picture and he does not want to go. that may be difficult to overcome. the democratic party so far excluded itself from any negotiation. hopefully, we will return back to the table. francine: what is the biggest risk? for the banks? or is it about euro acceptance? luigi: the biggest risk for italy is we do not have a government that will start reform. the country is going very slowly. the recent imf forecast suggests

even slow growth will get even slower. we cannot sustain our debt reform, a very large number of people unemployed, especially in the south. the south has been hit hard by the double recession. itperate need of recovery -- is not is a prize that the five-star movement won in a landslide in the south. in sicily, they gained more members of parliament then attended. they lost one seat because they did not have enough candidates. francine: there also offering 800 euros to every household to make up for the lack of growth in the south. if they go ahead with that promise, even if the five-star movement goes with 10% of their promises -- how does italy fund that? of everyat is true politician, 10% of the promise and no taxes -- no budget will

ever be balanced. italy is the only country in havee, with greece not to broad unemployment insurance. without that -- we need to have that. we need to find resources to pay for it. my favorite thing would be to cut some excessive expenditures. every government has promised to cut -- there is a lot of fat to be cut and that would be a good way. tom: we are going to do surveillance existential right now. i have a panel today with the international monetary fund -- to be honest -- trust and resilience, with the news flow, it has become an extraordinary panel with matthew harrington, laura tyson, and luigi zingales of the booth school.

this is not funny. these institutions are under siege, whether new populism in hungary, italy, or the united states -- this idea of trust is evaporating out of our system. how do we get it back or is this a permanent change? luigi: i think -- hopefully it is not a permanent change. my view, probably different than most people, these institutions and in general, governments are losing trust of the people because they are not trustworthy. the transparency that social gapa affords creates a between what the government say they are going to do and what they actually do. tom: what do politicians need to do to adapt to the new technology? here it is. see that? stand, blackhawks!

today, you do available if you are angela merkel or donald trump? luigi: those toys make you more transparent. there is nothing better to understand character then reading tweets. the president is an example. tom: look at italy. mr. renzi went down in flames because of the flow. luigi: because he was promising -- people love it at the beginning. he came across as a down to earth person. the moment he got in power, started to push rhetoric, under him italy has changed and is fantastic. people look around -- i do not see this change. tom: let's bring it over to the corporate world, kate moore, matthew harrington will be with me today. the edelman trust says corporate officers are struggling with this idea of message in trust.

do you see a new corporate officer out there writing a 46 page note like jamie dimon? management teams that have survived and done well over the last 10 years, very changing corporate landscape -- they are naturally more conservative. more risk averse than they have been in previous parts of our cycles. here they are -- long into the cycle -- they have been benefiting from being conservative. from being cautious about spending and investment, from managing to the margins, to what shareholders are interested in -- also really thoughtful about how valuations look relative to their peers. this is not a group that has been swinging to defensive for the last 10 years. that has paid off. political is confusion or discussion or potential risk around trade -- it is natural for them to go back to the conservative behavior. it is one of the reasons -- i am

less excited about huge amounts of additional, incremental investment. we will much more likely see companies thinking about more cash to shareholders. and and to buybacks and perhaps special dividends. a chief executive, you are right, going back to default position. i'm not sure what we make of these politics in italy or hungary but the market seems to ignore it. is it the way the market is on tuning or that they do not know how to price it? kate: they're not sure how to price these risks. -- corporate also balance sheets are excellent. companies look safe when you look at a long-term history. there are major trade risks and political risks, companies themselves have been able to shrug it off over the last few years and have continued to maintain very

healthy balance sheets. there is hope there. there is something about market composition really important. central composition is different today than previous cycles. more growth companies, more technology, more innovators. those companies are often generating huge amounts of free cash. that gives investors confidence in maintaining beta exposure. francine: if you look at the composition of italian growth -- 1.5% gdp growth in 2017 and people voted for governments that spelled change. do we need less exports? how do you read final it into domestic investment and domestic spending? luigi: it is true that we are 1.5% growth that after decline or under 1% growth -- it is important to remind people that italian gdp, even if below, real

terms below what it was before the financial crisis. we need robust growth. this robust growth must come from both fronts. from export and the internal front. demand,portant internal to out do that and maintain budget. that is the challenge for the next government. tom: the budget will be a challenge to say the least. a new scene at "bloomberg surveillance," we are getting used to $1 trillion there, $1 trillion here. we continue with kate moore and luigi zingales. don't forget your morning briefing, coast to coast. fmd morning, 99.1 washington. worldwide and coast-to-coast, this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance," i'm taylor riggs. let's get the bloomberg business flash. shares of ibm lower in premarket trading. first quarter growth markets a missed estimates -- no avenue growth. that raises questions about ibm's ability to sell more cloud-based software to restart growth. facebook complying with privacy rules in europe. saying it will provide the same protections to its 2 billion users. bese users in europe will notified this week of information they are sharing and they will be asked whether they want to be bit on profile. -- keep it on profile. european car sales the weakest in five years. british consumers apprehension over brexit cap holding back the

men in the region's second-largest market. that is your bloomberg business flash. tom: taylor, thank you so much. the president more than active. a number of blocks from our studios in washington, down the road past the church of abraham lincoln, the treasury, over to the white house. the president tweeting now, confirming mr. pompeo's trip, meeting went smoothly -- good relationship formed. details of that capital summit being formed now. " denuclearization will be a great thing for the world but also for korea." we think the ambassador for his perspective in the last hour. -- we thank the ambassador for his perspective in the last hour. director of the stability mechanism, balancing people together, luigi zingales,

kate moore, klaus regling. i am thrilled to have you here. i need to rip up the script and speak of the trip of angela merkel. angela merkel to washington on april 27 -- i don't know if you are aware of that but the president has announced she will travel to washington. what will be her goal in coming to washington to see the president of the united states? klaus: we are concerned and that is one of the things in the meeting this week -- that trade it might be negatively affected by some of the actions of the u.s. government. stimulus forucial world growth. we have seen in the last two during the crisis when trade was hardly expending at all, now world trade is growing faster than world gdp and that helps everybody to increase growth. protectionismk if

becomes widespread, some measures that have been taken have indicated that. we will all suffer. tom: would you please explain for our world audience on television and radio this the delicacy of a german running the european central bank? i had the honor of sitting in your old ecb building in frankfurt, first-rate -- why does debate over who will replace mario draghi -- have inverted it would be a german? heaven been for bid -- forbid it would be a german? klaus: i don't know -- it had to go through several debates in the u.s. big for it was -- in the u.s. before it was determined who would become the next fed president. debate on that,

we are very happy to have mario in -- to have mario draghi in place for another year. let us remind our viewers what the eurozone is. the backstops at the european stability facility, now it is known -- will it be a concrete backstop. role do the germans want it to have? klaus: indeed, the height of the crisis -- we were created. a new institution. that did not exist before the euro crisis. to fiveprovided loans countries over the past eight years that lost market access or were close to losing market access. euro, more than 300 billion u.s. dollars. we made sure it stayed together.

that -- we have cap stability -- we have kept stability. the five countries that received money have implemented reforms. that is why they are among the best performing economies inside europe now. we learned how to handle the crisis and that is good. now there is a debate that we might do more things but we can look back. esm do?: what will the will it become nominal, a european monetary fund? will that have the backing of the germans? klaus: there is a debate in our 19 member states and these things are never easy in europe because 19 independent countries have to agree. they have to find consensus. that makes it difficult. it is easier to do dramatic

steps in a crisis. we are happy to be outside the crisis. we are well out of the crisis but the urgency seems to be less and it takes more time for debate. in general, member states should play a stronger role in the future together with the european commission in case of a new crisis. tom: price theory. we can do that with the university over chicago -- the university of chicago with decades of data. this is, the massive the virgins, the transatlanti the me diversion's, germany's negative yields said there like a rock. how large is the transatlantic divergence? luigi: at this moment the most important is on fiscal policy, europe is not, particularly

germany is not. saying the rate rise in the united states is because of higher yields to come on one chilean dollar deficits? luigi: in equilibrium, rates should be higher. we are worried about being so low in europe because they seem to represent a lack of demand. certainly the growth in europe is not as strong as we like it to be. important, at blackrock as well. assume,ee -- do you this is a rate rise about fiscal irresponsibility in the united states? kate: it is a reflection of growth as it stands now and not forssarily what will happen fiscal responsibility going forward. it is the real-time reflection of what is happening in the data. going back to what luigi said, regional opportunities -- what

was going to be driving earnings in 2018, 2019? a significant boost is coming from the fiscal stimulus and tax cuts. you just mentioned there is a -- fiscal divergence -- relative to where we were in 2016 -- we do not have that massive tailwind contributing to earnings growth. in a year like this year where we have uncertainties, the geopolitics -- our base expectation is equity markets are going to be driven by earnings and cash returns. instead of thinking about multiple expansion as a contributor. against that backdrop, the potential total return for europe may not be as strong as the u.s. because of the tax cut fiscal stimulus. tom: is it a single digit world? it wase announced to me

a single digit world. equity markets -- double-digit, double-digit. you know the math. believe in an age of diminished expectations but in the near future, we are more in a single digit world. francine: i want to go back to european integration and what we were talking about when emmanuel macron was elected. do you think we will see a banking union and a capital markets union in our lifetime? klaus: absolutely, no doubt. european union started five a common supervisor for the systemically important banks. we have a single resolution fund, a resolution board. we're discussing the backstop for that. we discussing the need for a european deposit insurance.

it is controversial but not so controversial -- we need it and we will get it one day. the question is, how quickly can we implement it? conditions have to be a place like sorting out legacy problems in banking systems. it is not that difficult. there are different views on that. there is not disagreement that ultimately we will have that. your question, in our lifetime, no doubt. important is it to the german people that they saw this management change at deutsche bank back to a german guide with an authentic understanding of germany and its people? how important was that taken in germany? klaus: i don't think that is the most crucial issue for the german public. deutsche bank is the biggest bank in germany and therefore, it is an interest that it is

well-run and profitable because the german economy needs the big bank. that is more important than nationality. dc,cine: over in washington thomas heading over to radio. thank you so much for joining us. .uigi zingales, klaus regling impacte talked about the of monetary policy at the fed. do you still like tech? or is it going to be overregulated because of the scandal with facebook? kate: it will be in the spotlight. it is not -- it is hard not to like the sector. these companies are growing fast. they continue to innovate. we talking about acquisitions and m&a, they are acquiring interesting technologies. the verytually -- consensus sector, it is well

owned across hedge funds and individual electors -- individual investors. we remain constructive going forward. not all tech is created equal. there are technology companies in every sector. that is going to underpin the classification, or the classification later this year. we suggest looking global for tech. we see great opportunities for chinese tech companies. we are on the opposite side of the regulatory perspective there. the u.s. is thinking of regulating, the chinese are providing capital and support. francine: breaking news out of morgan stanley, three minutes early. first-quarter earnings per share, $1.45, not revenue, $1 billion beating estimates. i want to get a lockdown on what this means. if you look at the financial sector -- i am expecting more breaking news i will bring to

you, but the financial sector should be helped by interest rate. kate: the financial sector should be helped by many things. interest rate rises, or capital return, healthy balance sheets. continually talked about. the numbers were solid. i have been disappointed by the market reaction, largely seeming to be about guidance and tone. francine: thank you so much. morgan stanley first quarter investment sector, the breakdown of every unit, $1.6 billion for revenue compared to estimated 1.4 billion. kate moore, more on morgan stanley on daybreak. this is bloomberg. ♪

>> magic morgan. morgan stanley crushing estimates.

equity trading revenue -- putting on the brakes. inflation flows in the eurozone calling into question the strength of the global recovery, and the overshoot era john williams says inflation can overshoot their 2% target. the fed funds rate can rise above the mutual rate. right i'm david westin, here with alix steel. you said it is a sunny morning for morgan stanley. alix: the stock is up over 2%, what will it hold? up 11%, $1.9 billion. equities just killing it, coming in at $2.56 million. atestment banking beating, $1.63 billion. the story will for jpmorgan and citi was that it was not a good time for investment banking and ficc, but morgan staey