simple, easy, awesome. in many cultures, young men would stay with their families until their 40's. ♪ >> skyrocket. -- commodities skyrocket. alcoa says it does not end there. inversionard says an could come within six months. the flatten continues. with.k. is up house notes the customs union, we will speak to shadow chancellor john mcdonnell. ♪ >> welcome to "bloomberg surveillance."

let's check in on the markets. after rising for two consecutive days, the best of optimism on the economy being tested by this flattening usa yield curve. showing signs of dissipating this week. sterling down a second day against the dollar. down a third day, excuse me. it has been a week of big days. we get sales data in 30 minutes. the retail components of the course has been a week and in 2018. what will that data tell us? we will have reaction to the latest in the brexit moves, the house of lords voting against that key part of theresa may's brexit policy, inflicting a defeat on the government that could push it closer to closer ties with the eu. commodities, up by 0.75%.

the highest level since 2015. the turmoilckel, unleashed by u.s. sanctions reverberating with alcoa. it is still assessing what those curbs will mean. coming up on surveillance, we will talk markets and commodities. later, it is ever brexit show. ,e will bring you new polling number cruncher politics. john mcdonnell, u.k. shadow chancellor shows the program -- joins the program a little later. let's get the first word news. hasresident donald trump replaced the threat against north korea with more conciliatory and diplomatic language. japanese prime minister shinzo abe, trump says, kim jong-un.t

the white house preparations for the historic meeting indicates it is likely to take place by early june. meanwhile, president trump and prime minister abe have intense bilateral trade talks. trump is pushing for an agreement that would reduce american trade deficits with japan. abe is seeking an exemption from the steel, aluminum tariffs. president trump: we are working to improve our economic partnership i am proving our trade imbalance. united states is committed to aee, fair, and reciprocal -- very important word -- trade. we are committed to pursuing a bilateral trading relationship that benefits both of our great countries. >> south africa's president calls it a new dawn for his country. million to raise $100

in investment. he is committed to reverse years of economic stagnation policy, uncertainty, and looting of state funds. he made the comments in an exclusive interview with bloomberg. >> we certainly want it to happen. we agreed to make every effort to make sure we get close to that. hasve heard that the imf revised their own figures upwards, and treasury has revised them upward. i am hoping to revise mine upward as well. i think it is possible. >> in south africa, we are joined at 7:30 p.m. u.k. time. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. thanks a lot.

let's kick off with commodity prices reaching its highest level in three years. oil rises, concerns about u.s. russia tensions roosting industrial metals. the aluminum story hit its highs , the chief executive of alcoa says it has more room. previous deputy director in canada, this is a seasonality chart for aluminum. it can see the five year high. orange.n we see a spike in aluminum because of the sanctions. across --ing rubles we're seeing grifols across the commodity market. are these something we should be concerned about? >> we want to be cautious and see what happens. the broader story, we are in 2018 facing a macro environment that is different from what we have seen until now. the key feature of it is

increased uncertainty. the infestation of that, we are , sanctions, actions and now we are the market react to that. is another chart i want to show off. it highlights how industrial metals are booming. contrary to precious metals. warnings from central bankers. officials last night, the imf meeting, it is clear that the concern about the possible trade war. the town has been dialed down a little bit this week. especially at the trump abe meeting at the white house. what are your worst-case scenarios going through your head, and the best case scenarios going through your head? isn: the worst-case and i'll -- the worst-case scenario is is escalation.

it is not only about the trade, the sector being affected, trade has been up powerful catalyst for the synchronized expansion we are going through. this is the most global expansion we have lived through. the reason we are constructive on the remaining leg of the cycle was pretty good on trade. any of that noise could have an impact. . remaining leg of the cycle, what does it look like now. how long, what is the town of the remaining cycle looking like? jean: if we have the trade risk being contained, we are not eating up the global economy. that gives us time. the time should be in years, not cycles. nothing quarters. that starts to be the question if we see trade noise.

and: and implicate -- >> the implications are. not behe risk will rewarded as a has been the last couple of years. at the same time, the risk is higher, there is real risk, macro risk. this is an environment slightly less favorable for taking risks while these uncertainties are there. stays with us. despite a stand up with its neighbors, we speak with the executive of doha bank. this is bloomberg. ♪

♪ mark: this is "bloomberg surveillance." i am mark barton. yield curve,g concerns over trade disputes, central-bank concerns about trade. dudleyk fed president said a trade conflict would be a terrible outcome of which the u.s. could not win. jean boivin is still with us. possibilities of an inverted yield curve. john williams was in madrid, he was asked the question about it read he said it portends a recession. to see an inverted yield curve? what does it mean? point, think the key

this environment, we think is different than what we see historically. there are big structural forces that are maintaining long-term rates lower than they have been historically. we cannott, mechanically apply these overlook thumbs. five months of an aversion, you expect a recession. maybe a time where the cycle was what theand that was yield curve was reflecting. at this stage, the massive savings globally, 22 trillions that will be 2018 made. that is keeping a lid on interest rates. the fed is raising rates, so it leads to flattening. as we go in that direction, we will see a flat or curved and we have seen historically, but at the same time i do not think we are seeing an inversion or slow down. mark: we had a viewer question for you.

this is a chart he referred to, he says when the fed underrate moves above its long-term average, the pmi around 55, after a couple of years the fed starts cutting rates, the pmi walls close to 11 to 40. today, the viewer says we have pmi's around 60. about the long-term average, unemployment is looking good. he says, do you think the fed might move too fast with hikes? are we going to see the next cycle of cuts within the next few years? that is our viewer question. the pace ofk normalization that the fed has been going through is extremely standards.historical i think the moving average needs to be taken with the proper context, we had been at zero for a long time on the fed ones rate responding to this crisis. down the moving

average. i would not use that mechanically. i think the key point, a year , the fed was talking about maybe three to four hikes in 2018. that was a time when we did not know about the massive fiscal stimulus that has been act -- that has been enacted. the outlook has been minimal at this stage. when you put that together, it is a gradual normalization, and we have a big stimulus at an unusual time in the cycle. it does not strike me as being particularly fast. we can see some upside risk slightly faster normalization from here. i'm going to drag this chart across, it was something i was reading when i was coming into work. it is something we were discussing with our guests yesterday.

premiumws the two year over germany. as we know, the difference in yield has shot up to multi-decade highs. what has not happened at the ine time is an improvement the dollar. why is that? some are calling it the trump discount. what do you put it down to? jean: we have seen a breakdown between the relationship of the dollar and interest rate differentials. this started a few months ago. we had been in the last two years in a world where the story was purely rates about policy divergence. that is gone. one key factor that is important , the exchange rates go to different regimes, at a different point in time there are different drivers. we are in a world where it is about risk sentiment that is the key driver of the dollar. earlier this year we had the fiscal -- the fiscal stimulus

that has kicked up growth in u.s. expectations. this was a view that it was possible -- positive for the world as a whole. that allowed to diversify away from u.s. assets. on top of that, the u.s. assets are not proceed to be as safe as they used to be because of the trump noise story. mark: is that cyclical or structural, the move away from u.s. assets? are we at a changing of the guard? jean: tough question, and this is a big call to make, but there is persistence in that. i think policy is a driver, but by whatperseded more drives risk sentiment across the world. the trade noise, as i mentioned, the

big driver, and we see that affect in the dollar. mark: jean boivin, head of economic and markets research, blackrock . the boycott, caught charlie's markets in bond sales, despite the scandal with its neighbors. we will speak with the chief executive of doha bank. this is bloomberg. doha bank. this is bloomberg.

♪ economic finance policy, this is "bloomberg surveillance ." i am mark barton.

among the ongoing boycott by saudi arabia and other gulf states, as well as heighten tensions in the middle east following western attacks in syria. how easy is it to do business in the country? jean boivin from blackrock is still with us. how is sentiment following the successful bond sale last week? >> after may 16, we were testing the market. confidence,y especially before closing the deal. that was a big surprise. the global community issued to europe and the u.s., commitment itqatar, that is indication is a country of great substance. this is the message you

are getting from your customers, your clients, is it a consistent message? >> absolutely. a billion to 9 billion. multiple times we have taken 12 billion, and it is cost-effective. mark: what about your bond sale this year? the expectation was $500 million in the second half. is that still on track? ,> we can look at long-term options are open. which will be more cost effective. mark: what is the target market? >> clear across the growth -- clear across the globe. we are looking at options. if it comes through, there is no need for public debt. mark: liquidity in the banking sector, has it got better? >> absolutely. the beginning of the crisis, last year the financial

stability has been reuven. linda growth was 8%. we have seen mark: are you making changes to the business, job cuts. playmate the planned date, not on the operational management. in terms of realignment of the business model. being isolated, our new partnership in terms of business management is taking place especially in banking. you expect 5% to 7% profit growth, are you on track for that? >> there are indications of that. recently well.ed mark: are you working with various companies, we heard the banks are being told to work with qatari companies to help finance the borrowing.

are you part of that process? >> the changing business model calls for asset location especially when it comes to lending. especially in the contract financing side. .hat is a process we are working on it. once the system is measured, -- mark: part of your expansion plans is within the market space. why are you going towards india rather than some of the more obvious emerging markets, those in africa, russia, turkey, and others? >> which is the most transformation in terms of leadership and opportunities, decisive leadership, you have a five chilean dollar economy in the making. governments,tal

1.5 billion, e-commerce. extraordinary transformation. commitment in terms between the gulf states is synergistic. we have a third branch opened last week. market relationship, a where we see opportunity, and investments. mark: will you exit your branches in the uae? we will find a business model for trade with india is huge. model we areess trying to optimize as much as we can. mark: have you been busy in the etf space? is the trump card.

here is a country of great stocks,e, so bringing diversification is there, , you willcy is there get a good return. equities, so cheap, cost-effective, we have come with the right product. mark: great to see you again. chief executive of delhomme bank. the ecb calling for crisis powers over u.k. based clearinghouse is after brexit. it is our brexit show 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. headquarters, i am mark barton. >> the u.k. upper house voted against theresa may's policy. the defeat i am margin of over

100 votes on an amendment pressing the government. on herhe first vote european withdrawal bill, proponents winning further votes as it passes through the upper chamber. we are keeping closer ties with the european union. theresa may's plans, another potential legal hurdle. the country's highest lord is set to roll supreme court judges will look at legislation passed in the parliament. it would give lawmakers stronger evolved power. pressure on the u.k. to come up with a solution to prevent a hard order in ireland after brexit. the european president warned that all deals including the transition agreement would be canceled. the u.k. end officials have been

addressing the question for three weeks but are yet to make a breakthrough. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. mark: thank you. we pointed to this yesterday. this is a wonderful function. highlighting the specific data. there is some retail sales plunging in march. snow and freezing temperatures keeping consumers indoors. sterling moving on the news, down for a third day. the volume of goods sold in stores and online doubled the drop addicted, excluding auto fuel. another blast swept in around

the middle of the month. record, among the worst hit were sales of clothing and household stores and household goods down by 7%. interesting piece of data given the other data we have had this week on wages and inflation. the right,ere on retail sales, there it is. if you go to bloomberg, a wonderful function. stick in a country and you get the data expected. we are showing off here. from blackrock is with us. the recentverlook retail sales data because of the weather? jean: honestly i have not gone to the details, but i think from what i can hear, and what you

factorsough, there are at play, whether seems to be a factor. this is one piece of data, if we are trying to read into what that means for sterling, for the boe, i think there is the brexit discussion we will have. talk about sterling because we are at down for a third day. investors talking about a hike in may, but later this year. that has come up to a boil a little bit. inflation is coming down. for that take away the need a second rate hike this year? jean: i would be surprised that the framework which the bank is operating is predicated on this week's number, so i think the framework on it was brexit uncertainty has moved to a different phase, and it is not something that is imminent or matters for the next year or two.

there is room for normalization. i think this is worthy of note, but i do not think this is something that will change whether you need two hikes. mark: how was brexit playing out from your standpoint, given you are a man from canada, and there should be a plus plus deal when it comes to brexit, how do you think it is going? jean: i think since last summer we are moving to a more constructive phase where right now there is more of the smooth evolution. it makes it harder to imagine moving away from that track, so if people had hope of this, i think we have more certainty in the near-term. i think the noise around the lords though, i do not think it matters for what will happen. ireland ands around borders there. that is going to continue to

play out, probably in the fall. overall, this is an environment like a smoothe environment on the brexit front. as a result, i do need -- i do not think that should dissuade the be awake to move away from that. , head ofn boivin economic and markets research, blackrock. includingup today, lording over may. the prime minister suffering a defeat in the upper house over her plans to leave the eu customs it union. will it herald the way for a softer brexit? we will look at the chances of britain voting to rejoin the eu. this is bloomberg. ♪

mark: i am mark barton in london. the u.k. prime minister brexit vision suffering a blow yesterday when the house of lords voted against government plans to leave the eu customs union. more than 100 votes could push britain to keeping closer ties with the eu. the negotiations in brussels force a meeting between the eu and u.k. about their post brexit relations. little in the way of progress. this vote is not going to change the policy. it does open the door for changes down the line. the government official line,

the response to this is that this amendment because it is loosely written, the government can't shrug it off. the size of the defeat opens the door to not only when the bill comes back, it has not been debated on votes. basically we are looking at early summer we could see another showdown. at that point there would be more at stake. mark: first day of the proper brexit discussions took place yesterday. anything happen? have we made progress? cap we signed a trade deal? eu talkedrussels, the through their guidelines. the guidelines they published setting up a basic free trade agreement. it does not do much for services. it is clear that banks will not get what they want. what thoseed through

guidelines are. the interesting thing, three days of talks this week, the first two days, only after that was there a meeting on the future relationships. mark: i have enjoyed reading your brexit bulletin. another redline phase. is the government changing its tune when it comes to immigration? it does seem to be a bit of a softening. theou compare the rhetoric, u.k. will want to work and study in the eu and vice versa. she repeated that. it was said recently that the policy would be freedom of movement of brains, not brawn, but brains. that is interesting. boris johnson in the telegraph

says it was not about flashing -- slashing immigration. there does seem to be a softening in the town when it comes -- a softening in the tone to this government coming quick to come out and say it was all about immigration. may, that was her interpretation. mark: are the red lines disappearing in front of our eyes? >> they might be turning pinker. fiddling around with terminology is fine in terms of what our policy might be. the eu, it is an all or nothing deal. the government is nowhere near, i do not think they will go near accepting free movement. they have an election to think about. mark: what do the polls tell us?

want to remain out of it? do they know what a customs union is? >> these things are difficult to do polling on. -- thelish disease intricacies are not something that many people have familiarity with. when you ask people if you do not provide information, it is just for or against, you get of lot of i do not know. the way you do that has an impact on the answer. everything -- it is hard simply because there is no impartial westin. mark: one of the more interested developments was david cameron , he hadn interview disappeared into the background. he spoke to cnn and says he does not regret holes in the , but the country

voted to remain. what did you make of it? there was not a whole lot of interest, which is surprising from someone who was prime minister recently. mark: are you amazed he does not regret holding out? he said thatk before. i recall a year ago he made a speech in asia where he said having the referendum was a way of taking the poison out of english politics, an interesting take. what is your take on it? as mss, it is not the be-all and end-all. emma says, it is not the be-all and end-all. it goes back to the

commons, it drags on longer. see,ll be interesting to in terms of the effect on domestic policies. it has an impact in the short term. people have tuned out. us four, but it is the day-to-day in brexit. emma: the pound is down. mark: it is for the third day. pound investors were not thrilled by the vote last night, because they do not like the uncertainty, government defeats and rebellions. it could leadnk to a softer brexit? is the pound higher? emma: exactly. anand: no one knows what a customs union is. everyone is hedging. the labor position is -- the

experts sayion, that will not be on the table. this has a way to go yet. emma: it depends on who you speak to. after the corbyn announcement, we did see officials who said they could work with that. to are obviously not going veto, you will not get more power outside. the mood music after that announcement from corporate, maybe we can talk about it. anand: it depends on what they give us in the way of consultation. this is far from a done deal. mark: you are all staying with us, but emma is disappearing. up next, putting the brakes on brexit. we look at a poll that says do not hold your breath. this is bloomberg. ♪

♪ welcome back mark:. last week saw the cross party campaign for a referendum of the final brexit deal. happen the vote does not -- how does it feel about reversing brexit? half have said they would not choose to rejoin the block if a vote were held in 2020. let's dig a little deeper. fascinating poll. the idea is we left, imagine it, it will happen. do you want to rejoin? what were the interesting >> and discoveries? matt: 47% saying not join. the remainder undecided. what is interesting, within that, among people who left or voted to leave in 2016, there is

still a very strong sense of not wanting to rejoin. among people who voted to 50% among those who voted to remain who would support rejoining. but among conservatives who supported remain in the first place, there are a lot less enthusiasm for rejoining. they are less enthusiastic about staying in. there is a difference there. that gives us this 16 point lead for not rejoining. mark: this goes to the heart of the matter, we just want to get on with it now. do people just want to get on with it? hence this poll that says we do not want to rejoin? anand: the only thing you can say about public opinion is it wordinge different

comes out with different results. it was the right decision or wrong decision, most of this year one decision is slightly ahead, but only slightly. divided onvery bit this question as we were in 2016. mark: and we will continue to do so. anand: who knows what the future holds. were to to me as if we talk about another referendum seriously, one thing you would have to see is a significant shift in public opinion picking it was a mistake, and that has not materialized yet. notions, these pro-eu center party, how will that play out? is there an appetite for a pro-eu center party within the electric? matt: it is very difficult to measure, we are talking about hypotheticals. difficult to measure, certainly

this is the democrats position. they have baggage from their timing government. getting a new party off the ground is difficult. that the remain and leave votes are evenly spread across the country far more than existing party support tends to be. that is a disadvantage to get a new party off the ground. witness the u.k. independence party in 2015, they got 3.9 million votes. they would certainly have their work cut out. anand: the other thing to bear in mind, the last election, the big parties had 82% of the votes. they have not had that shares since the world cup was in the 70's. when the tuba hammes -- behemot

hs, -- has not general there been an appetite for the second referendum. it tends towards similar results to this poll, a little more not much moreuse favorable. there is no sign of a majority. mark: if we scrap the date in march, 2019, does that make a difference? anand: it makes a difference in all sorts of ways. it says we will not have everything done by march, we should ask the eu tunic -- to extend the negotiation process. the problem is this is -- if you didmber, the prime minister that because there is a sense in her party that we need to get out.

it is a very political issue now. there will be a lot of opposition to scrapping the date because of the signals it sends. when you are doing a negotiation you should retain flexibility, but there is politics in that. there is a body of opinion in the conservative party that we need to get out. mark: on leadership, is may in a better position than she has been since post russia, taking poisoning sanctions into the is made in a better position now than she has been in for a while? yes, obviously matt: personal ratings is something people should watch closely. after the election, and some of the events following the election, may's numbers did get.

with corban, they were pretty close. after the russian incident, particularly with labour's issues, that hurt german corban's numbers. that has taken a bounce. mark: spinning in a different macron's vision can they's future, sort out france and the eu? anand: in an ideal world, the two are related. he will try to eke concessions out of germany. he can go home and say i am making progress in europe. the problem is he has strikes at home. and merkel in germany is pushing back. he has a meeting today with angela merkel because she has her own domestic problems. she suggested reforms that are the opposite of what macron wants.

the franco german engine is spluttering at best. mark: always a good chat, thank you. matt.menon and ,"loomberg surveillance continues. john mcdonnell, do not miss him. this is bloomberg. ♪

♪ francine: commodities skyrocket. also -- james bullard says an inversion could come in

months. the flattening continues. the uk's upper house of those against leading the customs union, raising the prospect of a softer brexit. we will speak to the shadow chancellor john mcdonnell. good morning, this is "bloomberg surveillance." we kick off the imf spring meeting. we have great interviews. i'm looking forward to talking emerging markets. will,nance minister, we how the fed hike impacts. what i would focus on, the immediate backstory in every conversation circles back to fiscal policy and the trillion dollar u.s. deficit. francine: there was a great morning read that we will bring to you. coming up, we speak to it spanish finance minister. we will also speak to the european commissioner in charge of monetary affairs.

york get straight to new with the bloomberg first word news. the u.s. and japan says they will engage in a new round of trade talks. they do not agree on what deal they are aiming for. president trump and shinzo abe discussed trade at a news conference in florida. the president wants a two weight deal. -- two-way deal. the trump administration will announce another argument to support mike pompeo's nomination to secretary of state. the white house has democrats that do not back pompeo could undercut the summit with kim jong-un. visit tode a secret north korea to meet with kim. theresa may faces more challenges on brexit. the upper house of parliament has overwhelmingly the fetid a part of key -- a key part of mays policy.

action is notords binding, but the legislation may wind up in front of the house of commons. elon musk taking the next step and search for planets outside the solar system. the xo planet survey satellite is expected to map out planets from small world gas giants. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you so much. , a commentlattening from mr. bullard is something. 46 basis points. let's go over that within the data check. the difference in the 10 year and the two-year deal, and you move the decimal point over two points. it is 0.46%.

46 basis points. oil elevated this morning. remarkable3, movement. you gave it away. me bring you over to what we are seeing in europe. european stocks seemed to be drafting a little bit. a jet is gaining. -- asia is gaining. seting at u.s. treasuries to climb on thursday. i'm looking at commodities in europe gaining 3%. the imf has warned that growth is poised to slow as banks tighten policy. the u.s. and japan disagree on trade deals they want to pursue.

leave, cheapam quick -- here is william lee. tom: this early in the morning, thank you for coming in. how do we deal with trade wars? is the main concern that they will rest today and tomorrow? bill: everyone is worried about trade wars. we could get a global depression out of it. the whole purpose of the wantsive was that trump to get people to the bargaining table. i think people are overestimating the impact of this trade dispute because trump just wants to get people to the table. i do not think he is credible and saying he will invoke the retaliation. francine: is this about intellectual property, and if it is, the president would have europeans behind him.

the president has to cut a fine line and appeal to the group who voted him into office, the u.s. worker. he has to have it look like he is tough and will shake rings up and get things from our trade partners we could not get before. , this is a debate about maximum market access. the u.s. and china is what it is all about. tom: how do we boost exports? andd a panel yesterday every conversation did not come back to the import debate of the president, it came back to how do we build business and boost exports? bill: it has to do with the reliability of every national identity. u.s. exports have certain why theristics, that is

chinese markets wants to have them. tom: a soybean is a soybean. what are we going to do to jumpstart the vector? bill: marvel movies are marvel movies. those are the ones we have our secret sauce in. you can get commodities from australia or any other country, but you can only get marvel movies from the u.s.. tom: how do you respond to the president, everyone says it is a legitimate right -- legitimate gripe on intellectual theft. he has a case. bill: he has the case of the last decade. china is also coming out and making inroads into new innovations and technologies. look at what to 25 is all about. they want to be experts in certain areas. china wants to protect its electoral property. the issue is how do we get details worked out? you look at growth, how do you sustain that?

the opportunities and risk associated with global growth should feature prominently in discussions in washington. the key he says is to strengthen the individual and the collective result to move which arelicies, many identified but not implemented. is this infrastructure spending? bill: absolutely. enhancing productivity. one thing we have not discussed enough, the new tax reform plan has innovations in it, it is incentivizing more equity financing. when we are loaded up with debt, managers are worried about paying off that debt. they make incremental payments that are not high risk or high return. with equity financing we have that opportunity to say, let's go for innovations that are more long-term and more innovative and presumably more productive. howdy you fund it when

you have tax cuts? -- how do you: fund it when you have tax cuts? bill: let's face it. the corporate's flush with liquidity. no one is scarce of funding if they have a good idea. crowding out is not an issue now or in the medium term. one thing we worry about is the explosive growth of expenditures that is fueling the deficit, and what we did not get it title reform. washington post today talks about select republicans want to go further on tax cuts. the other day it was suggested our goal is to get down to a trillion dollar deficit. that was not in textbooks in columbia. all. not at these republicans have forgotten republican tenets which are due

expenditure cuts before tax reform. they did it in reverse order but have forgotten. tom: this is the point i have seen in my first 18 hours here, worry about when is a check do? due you thinkheck we can do trillion dollar deficits out? 10 years. bill: at least five. the world is flush with liquidity. no one is short of money. growth to we generate allow five years of deficits? bill: that is the hope. francine: two years down the line, they talk about trade concerns, but could the u.s. be in a recession? ofl: even the imf estimate the probability of recession is under 20%. we have recession every five or six years.

the likelihood of recession is low. recoverytness of this is also somewhat questioned because so much is consumption with no savings, but we need more investment. 20%cine: did we have a chance of brexit and a 20% chance of donald trump and president? bill: you are absolutely right entail risks do materialize. francine: if you had the finance ministers, what is your word of advice? the: make sure we get incentives we need to get investment and not consumption. investment will get us to productivity. francine: let's go to london where we have live c-shares for our -- where we have live pictures. there will be a speech in a moment.

the duke and duchess of york, the opening is songs. tom: where is the commonwealth right now? does the commonwealth still exist, or is this just show? francine: this is one of the concerns the commonwealth countries, whether they wanted the queen as their head of state. this is important to put into brexit. it helps the commonwealth in the shorter term. tom: prince charles to come up now and make comments. we will continue here at the spring meeting of the international monetary fund. william leave with us. with us.m lee stay with us worldwide from our

studios in washington, this is bloomberg. bloomberg.

♪ this is >> "bloomberg surveillance." procter & gamble is offering popular medicines. merck wants more money into testing new drugs. unilever is planning a $7.4 billion share buyback. it is to reward investors. .t the snack market brand little lever -- unilever will pay for the business.

first quarter sales in nestle got a boost from americans spending more on pets. revenue rose it better than expected. the pet care business improved. nestle's confectionery unit weighed on the results. tom: with us this morning at these meetings for the imf. lee is at chief economist, milken institute bill: tom: you take it further as you always do, a week dollar has consequences for chairman powell. i want you to walk through this oddity of a legitimate currency move changing that behavior. imf, iten i was at the developed an index between

exchange rate changes. , thef the things we noted dollar depreciated since the beginning of last year by 13%. index, u.s. monetary that is equivalent to up to two percentage points of easing. it has offset all of the tightening the fed has done this year and last year. when the markets are worried about excessive tightening, you have to remember we are starting from a lower base. tom: the distinction is if we have three or four rate hikes in the dollar in the international markets, whether a weak or yen is doingstrong the work for them, where they would only do one or two rate hikes. bill: one of the things that the markets are getting -- getting ahead of themselves, choking off

, and the yield curve inverting. the inversion is a nice correlation, but it is not causation. why does the inverted curve mean recession? because the fed is tightening like crazy, they think inflation is getting out of hand. we have no sign that inflation is getting out of hand. yearsne: for the past 30 inversion means recession. is it different this time? bill: we have to remove her how to use the model appropriately. it inverted because there was aggressive tightening to get rid of inflation running away. right now the fed is not trying to get rid of inflation week as it hardly has any inflation. francine: what if the markets do not know how to live without that life support? bill: the markets are betting the wrong way. everyone is concerned about the possibility of recession.

we are 43 basis points from a numbers in, but that inversion does not signal the fed aggressively tightening. they say we are taking it easy tom:. what is theom: discourse? what is aggressive tightening? if you have seven interest hikes in 18 months, is that aggressive. bill: aggressive means you get above neutral. so far, we are accommodative and trying to get a neutral. tom: how does the fed get out of this box? they say three or four increases , is it look at that speech were chairman powell drops a bomb? do we listen for chairman powell in a speech to say something? bill: remember what chairman powell said at the first press

conference, i am worried about this rate increase. everything in the future i do not know anything about. down guidancet because it is not credible. tom: the critical point, if i am data dependent, part of that data is a litmus of the dollar system. bill: absolutely. when you look at monetary conditions you have to look at the exchange rate and interest rates. francine: is there a system where you can do both? if you only do dated the tendency, you are chasing the economy. bill: ideally they would have done that, but they blew it because the fed is no longer credible. when they said we would increase by x amount, they never did it. chairman yellen and bernanke both blew it. powell is the guy who says i am not an economist, i only know i

am concerned about this increase and all future ones will depend on where the data and forecasts are going. francine: thank you so much. coming up, john mcdonnell --lupin rahman. this is bloomberg. ♪

♪ francine: good morning. from the nations capital we are

in washington dc. this is "bloomberg surveillance ." onto brexit, and the brexit battle continues with theresa may fighting for independence from the eu. businesses have been outspoken. is agitatingty investors who prefer to know what to expect. let's go to young -- let's go to london. john mcdonnell is speaking to anna edwards. yesterdayr that vote when she lost out, she has been speaking at the commonwealth. just -- does join me on set. good morning to you. he is here in the building talking about a new deal, a new relationship with finance. this get your thoughts from the custom union vote yesterday. does it make it more likely that we see in the commons a version

of brexit that looks more like what you propose around the customs union? i think so. the scale of the defeat for the government was immense. i did not predict that scale. i thought there would be a 20 maximum up to number. the number of x cabinet ministers who voted against the government, i think it will force a rethink in the house of commons from hoping it will force a rethink in government immediately so we can come to some compromise. there werehink enough tory rebels to pass what you are looking for? john: difficult to say, but whatever happens in the commons, the lords will defeat this government until we get compromise. i think it was staggering last night. if i was theresa may, i would be saying game is over, we have to get a deal around the customs union. this try to work cross party.

i don't believe in an unelected house of lords. i am convinced about secondary chamber. i wasn't before, but i have been the last few years. the idea of having the chamber is good, it means government has to think again. i hope we get a rational discussion. anna: some people are joining the dots of what happened with theresa may's redline and her leadership, and you could ask if we end up in an election before the brexit situation. are we getting closer to an election situation? for a general election when it comes. i want to concentrate on this issue. the government should recognize because of the defeat, the scale of it, and come forward with the proposal on a customs union that we can all work from. being a party knockabout is not in the interest of the country. we need our financial markets

instability now. anna: part of that is to deal with the financial services sector. you want this deal and want to long-term, i heard you talk passionately about that. you will more investment. in online videos wales against -- wails against morgan stanley. they shouldt think be confused. we are reflecting the views of the population. back to complete deregulation. we cannot go back to a system which did ring about the financial crash. we have to respect the role finance plays. we will be complete be straight, here is what we will do, some of it you will like, some of it you will dislike. to sit alongside

manufacturers, trade unions, other representatives of society and advise us on how we can achieve a society society we want. out -- always call interesting enough, some colleagues in the finance sector -- we will always call out where we think there are in equities. we will call out where we think the finance sector is not playing the role it should. we have said, we want to ensure we have a good working relationship with the financial sector. we want them alongside us. goldmanen you go into sachs and have tea and biscuits, what feedback do you get on your proposals which include nationalization of parts of infrastructure? john: the feedback i get is we are mostly on the same page in investment. on theon the same page role we want finance sector to play. we respect the stable returns for that investment. on all of those.

we have disagreements. no one will be overjoyed if i say i am going to increase your income tax by 5%, that when i explain how little that is, people get reassured. on terms of public ownership we the financial times and others have been running campaigns about how bad the water sector is in this country. rail, if you look at opinion polls, and people i talked to, on opinion polls they look at them at the same as i. there is a range where we think public utilities need to be brought back. we have identified that. further,t going any but we say these are our plans, get used to it. anna: you say you were not going further, and you have no tricks up your sleeve. why do i keep reading research from within the city that says it might be the tip of the iceberg? john: you are right.

that is why we are saying this is what we are going to do. we will be open and transparent and if you do not believe us, work alongside us in developing our manifesto. i would rather they came in and started working that way so they can get the reassurance. also we can hone our policies. anna: do you understand the reticence some in the u.k. financial industry have? are you worried about the property rights? -- that ishas become because we have narrowly defined what we are going to do. that is in our manifesto last election and that will be in our future ones. we will set those parameters and we will not go beyond them. what will we be saying to people is we are implementing what you

have been telling us, the need to invest in our infrastructure and artificial intelligence and new technologies. you are doing -- we are doing exactly as you are asking of us. you do not have that confidence, isn't it better to come into our office and help us develop the plans than carp from the sidelines. anna: if we do see any challenge ready toa may, you are jump? on the basis that the conservatives will cling to office for as long as possible. my worry is they are not in government, they are in office. in parliament at the moment, every day of the week, there are no votes. there is no business going through parliament. .overnment is in paralysis

you cannot run a country on that basis. i would rather we had a general election as soon as possible, but if not we will work in the long term. we have done exercises in preparing for government. we have included as many partners as we possibly can. i want to extend that to a wider range of partners. anna: you talked about the bank of england. i know you are waiting on research on moving parts of the bank of england to birmingham. after mark carney, if you are in a position to appoint a successor, who would it be? john: we maintain the independence of the bank of england. we want to have a debate about the mandate of that bank, how that could reflect the modern world. anna: so you would give a mandate but you would not be time the bank of england how to achieve them? have a debateto

about the mandate but then we want to set up strategic investment which would bring together treasury, the bank of england, representatives from the finance sector and others and that we have a long-term plan for how we invest our resources in this country. as for the appointment after mark carney, i have a great respect for him. i meet with him on a regular basis and we have a good discussion. we are straight with him and in some respects i have been one of his strongest defenders. anna: have not liked qe always. john: he is straight with us. i would like to be able to tell you but i signed up with the chatter mouse rules. caliber.omeone of his anna: someone not from goldman sachs. john: we'll see what candidates come forward.

anna: john, thank you so much for your time. john mcdonald joining us here in london. let's get back to francine in washington. francine: thank you so much for a great interview. the shadow chancellor saying he meets mark carney regularly and has great respect for him. some of the things the shadow chancellor said about -- let's get straight to taylor riggs in new york. taylor: president trump is downplaying talks he will fire the key individuals in the russian election tampering investigation. mueller, ron rosenstein are still here despite talks he would dismiss them. trump called the probe a hoax and predicted it would end quickly. appear to bechina big again in the long haul in the fight over trade. they are lining up allies in the standoff over everything from

fuel to semiconductors. the focus has shifted to the international meeting of the monetary fund in washington. more fallout from the fatal accident at the southwest airlines jet. inspections will be ordered on the blades involved in the accident. antitrust lawyers are days away from improving tv station owners sinclair's $6.6 billion purchase of tribune. the new york post says sinclair has agreed to sell 13 of the 42 tribune stations it will acquire. the fcc is still reviewing the deal. global news 24 hours a day on air and on twitter, powered by 27 journalist -- 2700

journalists in over 120 countries. tom: in these meetings there is always a backstory. there is no question that the backstory is the debt of the united states of america. william lee is with us. and we are thrilled to bring you lupin rahman of pimco where she is head of sovereign credit. she is head of full faith and credit for the e.m.. why does indonesia care about the deficit of the united states? lupin: i think most emerging markets and found them to be to the u.s. policy. the impact this has on risk sentiment. the way the deficit within the u.s. comports itself so late in the cycle will have an impact on most emerging markets through

the risk sentiment as well as to it currency and the impact would have on inflows and outflows. tom: when you go to pimco and look at your set of bloomberg terminals, when you do that and you go in, what are you trying to see within em and the global markets to show that tension trillion trillion dollar deficit? lupin: the main focus is on how the dollar is going to react. for emerging markets it is whether it will result in a significant outflow from the emerging markets. if we see a significant stimulus which means the fed will be a lot more hawkish, and money comes out. what happens in the

credit space? is there similar carry trade? lupin: absolutely. high yield quite sovereigns like argentina coming to the market as well as small names in the african complex which are yielding much higher than some of the credit would. investors that are not dedicated e.m. investors have come in, there is some risk that if the domestic reform momentum is not there to keep those investors investing we may see some volatility. francine: where do you see value in the emerging markets? more: we have to be a lot -- emerging markets have become a lot more diverse over the last 10 years. one of the factors is whether you are seeing structural reform. another factor is the starting

level of valuations. countriesne of those where you're still getting high yields in the local currency space and you are seeing a quitement that is constructive in terms of the reform agenda that it put together with the imf. tom: i am working off the bloomberg app on the cell phone which is extraordinary. i forget how good this is. bill, i am looking at the philippine peso, it was 48 and then it was 50, and then it was 52. that is the example of the back-and-forth of strong and weak currency. lupin: i think you would want a weaker peso if you're an exporting nation. mr. how can you do that if

trump is giving you a trillion dollar deficit? lupin: in countries like the philippines you have much lower levels of external deficit so you can let the currency be a shock absorber. every emerging market once long-lasting money. all the exchange rate stuff is going in and out. we want long-lasting money. francine: how do you get that? lupin: by having credibility in your central bank institutions. investors do not just want the front end of the curve, you need to have fiscal consolidation plans, and a strong fiscal balance sheet. those are the critical factors to draw investors into e.m. francine: do you worry about temper tantrums from the emerging markets? nothing is really

happened, we should be fine. william: investors are so much on the edge looking for the extra basis point. you have to somehow decide where you want the long-standing money to go. that is hard. conversationsuperb and we will continue to fold and what we see with united states in terms of debt expansion. i suppose austerity is dead. furman inur, jason our next hour on the debt and deficit. 99.1 fm in washington. stay with us, this is bloomberg. ♪

tom: the queen of england speaking to the members of the commonwealth with prince charles in attendance and most of the royal family. it is not netflix or fiction, it is the real deal. it is the queen of england, with prince philip quite ill, he is 96. francine: he is fragile. i think he had a hip replacement. we saw the spectacle of pomp and pageantry which is associated with the u.k. royal family. welcoming the dignitaries with a lot of the advisors and the heads of state from the commonwealth. you can hear their from the queen -- you can hear there from the queen and we will be following closely what she says

as we get on to the start of the commonwealth meeting. let's focus on switzerland, the franc is rebounding after reaching a three-year low against the euro, getting in striking distance of 120. one of the most heavily defended boundaries in global market. let's get straight to the global head of strategy at rbc europe. great to have you on the phone. currency clockhe is rewinding. what happens when it touches 120? >> it is an important psychological level for a lot of traders and investors. at the inflationary outlook, it is still very soft in switzerland.

if it is down 20 were up 20 from here it does not make a lot of difference. how is it a potential milestone for the president to actually do something? i think they're going to be a lot more cautious when they look at it. there has been buying interest in euro swiss but as we have seen in the past, all you need is one big risk off shock and -- i do notanc think reaching 120 is going to to the snb that they can change policies effectively. anyway you can get to a point where there are not negative rates? eventually we should get

there but clearly the snb is -- i think there are other candidates ahead of the snb in that. i look at strong euro, snb wantiss, what does to happen in may, in june, in july? what is their goal? elsa: they have said that the swiss franc is highly valued but they have softened the rhetoric on the swiss franc. i think they are fairly comfortable with the direction of euro swiss but also trade rates in swiss have been taking. if things continue as they are, they will be confident that at some point they will eventually hit their 2%. if you look at their inflation forecasts, they are now forecasting to hit it. tom: thank you very much.

jenna -- we now go to anne-marie. about $100 a barrel, the vector on oil is higher. is it a new bull market in oil? that is certainly what these producers want. the target is now in reach for these producers to clear the plot. we stopped opec members calling for more intervention. the key of the meeting is does the deal last longer and how much longer. iea has said mission accomplished. saudior context, the minister in london has said he wants the deal to go to the expiration date and open the door to 2019. with more hesitant

alexander novak in moscow saying we are committed to the deal but once we have our contact reached -- mark whitner is saying you think they're going to take a victory lap, no way. they like seeing oil at $70 or $80 a barrel. difference with $75 or $85 a barrel for the mideast opec members? i talked to the iranian oil minister and he said he would like to see it at $60. they are worried that the higher -- there are two other issues overshadowing this meeting. from is a slow dropping the venezuela oil market, their data last month showed it is not their fault, but what we are seeing is much more expected oil coming off the market. ironic,itting in d.c.,

-- iran, what is going to happen with the sanctions. what happens when 200 to 500 barrels of oil, the market if these sanction waivers are not signed by president trump? tom: thank you so much. should tell you about our commodity edge, it is at 1:00 eastern time with alix steel. with francine and myself is william lee and lupin rahman of pimco. it is a changed world moving from $29 a barrel all the way to $74 a barrel. what is the most radical of shifts for emerging markets in this new bull market? lupin: it is a very significant shift. what we are seeing on the fundamental side is much more important. a lot of the commodity producers, particularly those

there were having oil breakevens well into the 70's and 80's a barrel have put innocent -- a significant amount of reform to adjust the spending and their economies to much lower levels of oil. we are looking for those names where we are seeing the positive momentum and can save quite significantly at $70. a couple of years ago we would of never said $100 of oil could stick. because of the lack of infrastructure in the u.s. to pipe the stuff out to the ports, we are now in a situation where these high prices can stick. that is one of the symptoms in the u.s. about the lack of infrastructure and how we need to get more investment. we are calling it metal mania. we haven't aluminum chart coming. now supporting these metals are sanctions against russian

producers. how far can that go? william: it is a politically induced market. will it be resolved if trump starts -- if trump stopped tweeting? yes it will. he will not stop tweeting. the question about how this trade skirmish might go, the metals are reflecting that uncertainty. francine: let me bring you over to the aluminum chart. deviation3.5 standard from the 90 day average. how will this end? supply is being curved by politics. does it end well? william: it will it will if the markets can adapt to the trump style of inducing uncertainty. he is a negotiator. he wants everyone off-balance, including the markets. francine: what does this mean for russia? lupin: investors are more cautious in putting money into

russia. before this round of sanctions and the tension we have seen over the last couple of weeks, russian local markets was one of investors favorites and this has made it a lot more cautious for investors. tom: we talked also about cirque, -- about zurich and visited jeddah. do not hear people talking about a commodities super cycle. when you're in your meetings that pimco are you beginning to frame a new bull market in all commodities? about we're not thinking a super cycle emerging and commodities anytime soon. see is are likely to cyclical boost driven by the global recovery. outside of select markets which are more affected by political

recently, you see will not see that long-term cycle. i'm not sure what is driving that this time around. tom: one example with brazil, , is this apolitics good moment for brazil relative to the difficulties of the last eight years? william: brazil has been a hodgepodge of every problem in the world. tom: exactly. william: i think the medium-term horizon is bright but they have a long way to go from here to there. i think the commodities reflects the uncertainty of that transition. chinane: let's not forget is moving from a huge economy where it is building things, it will build less infrastructure. the impact on commodities needs to be more priced into the market. china has capacity, even when it sucks in a lot of metals it was exporting it to

the rest of the world. right now the rest of the world is suffering. tom: to wrap up this wonderful conversation, i want to go back to the other story i hear and did not expect this. everybody circles back to the united states in our fiscal challenges. you are a sovereign analyst. do you believe in the full faith and credit of the united states? it is the dollar and it is your problem -- does the dollar save us in every discussion around the world? lupin: without question because there is no real alternative. until we see an alternative reserve money, out, we are not going to see any diversification away from the dollar. tom: this has been wonderful. lupin rahman of pimco. and william lee. we look to washington in domestic politics in the next hours. francine: will be talking to the

governor of the central bank of , it will be great to be on the ground when they kicked off in a couple of hours. we'll talk about growth but also trade barriers. furman, an up, jason important essay in the washington post, jason furman on your chile in dollar deficit. from washington, this is bloomberg. ♪

♪ tom: are you in search of volatility? your search will not be fruitful. the markets quiet. the two year yield a bill -- a bit higher. republicans in search of more and further tax cuts.

their search will not be fruitful. this happens with jillian dollar deficits. it would -- this happens with trillion dollar deficits. we consider trade tariffs and the missouri river west of vermillion. we are live from washington. the imf meetings, what are you studying? francine: i counted 18 interviews over the next 72 hours. we have finance ministers and central bankers from europe, we have some from the emerging markets. you want to focus on growth, i want to focus on growth and how they are finding places of commonality to make sure we do not go into a recession sooner than we think. my understanding is the new fiscal realities for america that seems to be percolating to say the least. francine: i am also looking

forward to the spanish finance minister, we have never met him because he just came into his position and the german finance minister. to knowgreat way to get some of these people in charge. tom: let's get a morning briefing with taylor riggs. taylor: the u.s. and japan say they will enter a new round of trade talks. and shinzo abe discuss trade in a conference in florida. the president once a two way deal. shinzo abe says the trans-pacific partnership is better for both parties. the trump administration is toling out another argument support mike pompeo's nomination as secretary of state. the white house says the democrats who fail to back mike pompeo could undercut the summit with kim jong-un. mike pompeo made a visit to north korea to meet with kim jong-un. elon musk has taken the next step to search for planets outside the solar system. his is spacex has launched a

transitive planet x those satellite. it is expected to look for planets ranging from small worlds to gas giants. global news 24 hours a day powered by more than 2700 journalists in more than 120 countries. i am taylor riggs. this is bloomberg. equities, currencies, commodities. higher interest rates are right -- are like a fed rate cut. you see the curve flattening with a higher two yield. 68.97.n oil bright crude $74 a barrel. yield does a lot of heavy lifting for a fed that would like to raise rates. francine: i am looking at metals. metals extending their stellar gains on thursday. leading.and nickel

what i am also looking at is some of the miners rising -- some of the minors rising. i am looking at pound levels because of the theresa may spat with the house of lords. tom: very good. our shock as we have two wonderful guests this hour. is with the pearson institute. and kevin cirilli is with us, the chief washington .orrespondent , the theme is the trillion

dollar deficit. does anyone care on capitol hill? kevin: it is remarkable over the last seven years to see republicans have this about-face with regards to deficits spending and quite frankly to see some of jason furman's friends on capitol hill be making the case that deficits are something to be concerned about. .om: let me bring this up this is the zeitgeist of that story. you saw in the president's press conference in florida. e.j. dionne writing for "the --hington post" the bosch of the gossip in washington. the president's repeated flinching on russian policy feels suspicious as to get them elected. and whether russian intelligence

services have information to use against him, which has not been established. kudlow violated another trump norm and issued a gracious apology. kevin: i am so glad you picked because this is what everybody inside the beltway is talking about. when you talk to republican strategists and republican consultants, the apparatus that ambassador haley has inherited from the jeb bush political orbit and former staffers of marco rubio's political campaign , it is very strategic about long-term political strategy. let me just add, there is an here. .his is to be continued i do not think this is over. i happened last night to be enjoying a beverage in the hotel and that was all everybody talked about. here at the are

imf, so how does the trump orinistration focus on that, whether he will meet with vladimir putin or the leader of north korea? kevin: the kim jong-un meeting could come as soon as in the next month and a half. there is no question as to what globalists are pushing for at these meetings. i was speaking with one source in congress laying the groundwork for this, how to recast and reframe the issue of global trade in the era of the trump administration. that means trying to push that if the united states is not going to enter into these types of agreement, or if the tpp is not the basis of the bedrock for bilateral, china benefits. that is what i am hearing more of from the likes of secretary ross. tom: do you see any indication in europe that this president gives one second of interest in the institutions water blocks

away? does he care about imf or world bank? i see no indication. francine: i see an indication of a lot of foreign leaders who would be ready to be behind foreign trump in putting a line with china in intellectual property. i see a lot of foreign leaders wondering what the foreign policy agenda of the united states is. it is 50/50. they are like we could be behind this president if this is what he means to say, but not if this is what he chooses to say. tom: i want to bring in jason furman with an extraordinary essay. former chairman of the president's council of economic advisers with an exceptionally .mportant essay the other day entitlement programs are growing largely because of the aging

population. the social security program needs only modest reforms. you say our goal should be to put the debt on a declining path on a share of the economy. two bipartisan commissions proposed a balanced approach that combines increased revenue with reduced spending. this is what the foreigners are talking about in washington. from where you sit with your international experience, how to we dovetail domestic leaders who could care less about fiscal responsibility and all the foreigners that of showed up and said what has happened to jason furman's america? the fiscal situation in the united states is madness. the imf released its fiscal monitor this week. they look at the fiscal situation and all the economies. ae united states deficit as share of gdp is higher than any other advanced economy. it is about 2% higher than the number two.

if you look at debt as a share of the economy, every other advanced economy is falling, the united states is rising. francine: when william blaze saying the u.s. can up this for another five years. at the moment you are still leader of the free world. jason: i'm not predicting a catastrophe. do i think interest rates are going to be higher over the next couple of years? absolutely. do i think that means we are going to have some combination of less domestic investment and more foreign borrowing? absolutely. do i think we are going to be poorer because of this? absolutely. it is not a crisis. tom: whether it is senator chuck grassley or democratic economists, including chair yellen, it all comes back to what kevin is dealing with every day. are we becoming a banana republic?

the imf happens to think so. jason: look at the tax cuts we passed. they are a big part of the fiscal problem. people love talking about entitlements. we have an entitlement issue, but that is not where our deficit came from in 2018, that is not why our debt is rising over the next five to 10 years. that is because we cannot collect enough revenue. tom: what is the number one thing you're going to be focusing on today? want to know what the commerce secretary is going to be laying out. tom: we will continue. kevin, thank you so much. we continue with jason furman. coming up, thoughtful essays on to linkage of america international economics. nathan sheets is with us.

this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." procter & gamble is adding over-the-counter medicines to its lineup. merck wants to put more money into testing new drugs. a $7.4r is planning billion share buyback. it is a way for the company to as mass-markets brands such as dove scop -- dove power.e -- lose buying first quarter sales of nestle got a boost from americans spending more on pats. -- on pets.

in the united states the pet care business improved and there was stronger demand for foods and online sales. the sale of nestle's american confectionary unit weighed on the results. much.ne: thank you so we are looking at live pictures of london. we do also have the queen and .rince charles they will talk about further integration or them splitting up. i will bring you data from the u.k. we are a lot of snow in the u.k. as in the u.s. for march.s plunging my view of the commonwealth

event here and of seeing the queen, how affected it is by the netflix show "the crown." the fiction of netflix and then you fall it over to what the families going through right now, i have no idea what to make of it. francine: we were trying to figure out whether it is based on history or 80% fiction. what we have been told is that the queen saw it and she did not complain. how the royal family give their blessing to something. are concerns over widening trade disputes that cast a shadow over the federal reserve's most recent survey of the u.s. businesses. now is a former council of economic advisers chairman, jason furman, and we also have -- tom: nathan sheets is joining us

as well. he has continued to write essays on the turmoil of the imf. francine: is the u.s. overheating? nathan: i think the labor market is tightening. low,% unemployment rate is but i think there is still quite a distance between where we are and high inflation. i would say the answer to that overheating is still a ways down the road? i want to thank you. pgim had an outstanding year. i was told it was all because of nathan sheets. nathan: that is very kind. this is an environment as an economist where the bond market looks for a coupon and hides under the desk or could it be a total return environment?

speaking to jason furman about the amazing position we are in. is it a coupon year? cuts coming the tax online, and there are lots of pros and cons, but firms will have more money in their pocket. i think that will potentially be good for investment. i think this can be a return year. these concerns about fiscal are year and there will be a piper to be paid. the is still a ways down road, three to five to seven years out. francine: what happens then? nathan: if we do not do anything, we will be in a world where we will see higher interest rates and increased macroeconomic uncertainty which could express itself in any number of ways. francine: could we have a recession then? a full-blown u.s. recession? nathan: absolutely. if we do not address our fiscal

problems, either through that channel or through natural macro events in a three to five-year horizon, absolutely. tom: this is wonderful. you're talking discrete points now and out there. you as a policy advisor, look at the gradient to get there. do you believe that we can get out there smoothly or is there going to be kinks in the curvature? jason: i'm an economist and i study supply and demand. right now we have a lot of demand in the u.s. economy. aboutscal stimulus is 1.2% to gdp is adding even more demand to our economy. i think more demand is fine, i'm not worried about overheating, but it is not what we need. what we need is supply. last year we still do not have a lot of productivity growth. our labor force participation

rate is flat, which is good news in an aging society, but we do not have any plan to get a substantial increase in productivity growth, a substantial increase in supply and that is what the u.s. economy needs, not a lot of short-term demand. understand what is wrong with productivity and how to address it? jason: i think maybe we need to understand. my instinct is that the week productivity growth reflects investment falling short of where it has historically. i think those that have supported the tax cut have their fingers crossed and are hoping that this tax cut, which as i mentioned would put more money in the pockets of these businesses is going to trigger increased investment in the united states. is that going to happen? maybe. i think it is an empirical question whether we get more

investment. if we do, i think we see high productivity. i am not confident of that. maybe there are other problems. maybe it has to do with demographics. lack there is some kind of of confidence in the corporate sector that is pulling back on investments. there are a lot of different possibilities but the case that a tax cut in the corporate sector leads to higher economict is the least ly plausible. the cover of "the washington post" this morning is economics 101. the idea is we will get growth out of all of this. even glenn hubbard hesitates about the scope and the scale of this get growth we have seen. how do we assume growth materializes short and medium and long-term out of a fiscal

stimulus? is there proof that that occurs? jason: i am sympathetic to supply side economics, we are not practicing it right now. i did a paper, we found it would .1% to gdp growth. earnst & young came out with a report with a similar number. the reason for this is if you look into the details, nathan is right, there are a lot of strange things going on. we are raising the tax rate on r&d. this is thinking about short-term, medium-term, long-term. this mean for our children and our grandchildren?

that is a poor emotion --st-to-coast and worldwide that is a core emotion coast-to-coast and worldwide. jason: if the debt was to finance investment, that would be ok. i have heard there would be some increase in investment and not nearly enough to justify the huge cost we paid. frame on this is there was a strong intellectual case to reform the corporate tax code. that part of the tax bill was constructive. that has been around for many years. the part of this tax bill that was problematic was the fact that it was not revenue neutral. they cut corporate taxes and they also cut household taxes. as a result of that, there is a big bill to be paid down the road. that is going to be a burden. no doubt it is going to be a burden on future generations, unless we get a very positive outcome. francine: do you both think

president trump can get a second term, and if he does not, would we see a reversal of a lot of the policies that have been put in place? >> i look at his second term as a 50/50 proposition. if he does not get a second term i think it is quite likely there is some partial reversals of this tax bill. is not sustainable otherwise. jason: 50/50 sounds like good odds to me. regardless of who the next president is, there is a huge imbalance between spending and revenue. there is not appetite for a huge cut on the spending side. that imbalance will have to be closed eventually. i am certain revenue will be part of the solution to closing that. do you think the infrastructure that has been talked about will end up getting done? nathan: i am doubtful.

i think what republicans think of as an and the structure bill and what democrats think of are not overlapping sets. i do not think it will happen in the next few years. tom: these debates are important. here with jason furman and nathan sheets. yesterday on the program, alan and then about peterson work on our debt and deficit to something new, which is a $1 trillion debt. >> until it becomes obvious there are consequences to that such as inflation beginning to emerge, the political system ,oes not respond because confronted with the choice of increasing spending and cutting taxes or the reverse, it is obvious that the vast majority of the congress and the president come out in favor of what i would call loose fiscal policy.

alan greenspan, fired up at 92 years old yesterday. the major thought to me was the idea that the politicians simply do nothing until crisis. jason furman, frame for us a crisis that would get the politicians going. i question whether a be social security -- i do not buy that. what would get them going? jason: that is the problem. the united states can make extended economic policy mistakes without paying a huge cost. you see that on the fiscal side where we have exorbitant privilege and you see that on the trade side. in sweden, no one is discussing a massive trade war because they know they would be devastated by it. if we embarked on a massive trade war, it would hurt our economy but we could survive in the united states. , but weurvive as well

are big enough and strong enough that it enables us to make mistakes that are costly but are not so devastating. maybe we will get time here with nathan sheets on tpp. nathan sheets is with pgim and jason furman with the pearson institute. coming up, senator mike rounds with the agriculture of the south -- of south dakota. this is bloomberg. ♪ retail.

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and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. ♪ francine: from washington dc covering the world bank and imf. tom and francine, here tonight and tomorrow. takedang to reuters, making a takeover of shire.

we have been talking about this. takeda is the japanese drug giant. there was talk about offering parts of the business for shire. we now understand from this report that takeda has actually the whole ofer for shire, worth 46.5 pounds per share. this is quite a big takeover target if it does go through. tom: absolutely. it is something to follow. a lot of coverage tomorrow out of the united kingdom. right now, let's go to new york and taylor riggs. president trump is downplaying talks he will fire key figures in the russia election tampering investigation. the president said special counsel robert mueller and rob rosenstein are still here

despite talks he would dismiss them. he called the probe a hoax and predicted it would end quickly. the u.s. and china appear to be digging in in the fight over trade. they are lining up allies in the battle to gain an edge and their of everything from steel to semiconductors. the focus has shifted to washington and the international meeting of the monetary fund. more fallout from the accident on the southwest airlines jet. regulators will order investigations on fan blades like the one involved in the failure that killed a passenger. airlines will be told to conduct a certain -- inspections of the blades when they have a certain number of takeoffs and landings. theresa may faces more challenges on brexit. the house of lords has defeated mays brexit of policy. the labor parties treasuries

spokesman says it is time for theresa may to make a deal. john mcdonnell spoke in london. john: the lords are going to defeat this government until we get a compromise. if i was theresa may, i would be saying the game is over, we have to get a deal around the customs union, let's try working across party. 24 hours abal news day on air and on twitter, powered by more than 2700 journalists in 120 countries. i am taylor riggs. this is bloomberg. in washingtonnown for certain is there only two types of senators. senators who are senators and senators who were governors at one point. they have a different attitude. governor mike rounds is now senator mike rounds of south dakota. he joins us from south dakota.

you come out of the missouri river and you go north, there's a lot of agricultural country. there is a different tone than to the southern midwest. what to the farmers of south dakota say to the president, what do they say about these tariffs, steel and aluminum and the impact on south dakota? they are still very supportive of the president but they do not like the trade policies. they understand free trade, but they want the illumination of tariffs. free trade, good trade, they do not want to be part of a trade war. tom: to they have the political might to change the dialogue or is it just a distraction and they will have to suck it up and do what china tells them? sen. rounds: the good news on this case it is bigger than them . if we want our gdp to grow in the united states we have to have a fair trade policy. we need tpp, we need nafta back in place and operational, and

then we need to be able to address china from a position of strength. if we have 500 million more people that want to buy our products from the tpp countries, that gives us added bonus when it comes to negotiating with china. that is what a lot of our folks would like to see. as an example, if you talk about a trade war with china -- they are the largest recipient of our soybeans. if you drop the market on bushel, and$.10 per south dakota that is $24 million to real people. that hurts. -- drop it by $.30 and a day francine: what is a fair trade with china? sen. rounds: a lot of us would like to see open trade all around. we understand the president wants to make it better than what it was. he thinks he can do better deals . people will support him on that.

francine: what if it makes it worse? sen. rounds: that's just it. they want to see the plan. what you want to get done with this? where do you want this to end up and how you want to do it, recognizing that for long-term gains you may be causing short-term problems? the short-term problems is what they fear because every day you suggest you do not have it -- an agreement in place impacts the market. our economy has to continue to grow. you not only have to have a good tax policy. i think we have created a good long-term tax policy. we are undoing regulations at a rapid rate, that will help the piece,, but the third workforce development, we are struggling with that in the united states and you have to trade policy in place. francine: do not worry about the funding of the tax cuts? sen. rounds: we could not fix the mess we are in today without the tax cuts. we will pay for those tax cuts

with an increase of gdp. .4% increase in gdp pays for the tax cuts. we already going from 1.8% to where we can show 3%. we believe we can exceed that. we cannot do it until all the pieces are in place and that means a strong trade policy. speaker ryan retires, mitch mcconnell as putting up the different thrusts of mueller and rosenstein. you and senator thune represent a bedrock republican group. how long can you say with this president? diehard republicans of the northern midwest, are they wavering in their support of president trump? sen. rounds: they are not wavering. they think his concepts of a good market, of having a strong military, they like that. is it because they do not

have an alternative to the democrats? is that your advantage? sen. rounds: it is true that he is not hillary, and that played a part. appointhe would conservative judges, he has done that. he said he would go after unfair trade practices, he has done that. he said he would rebuild this economy. tom: what are we going to do about the tax cut percolating -- in the washington post this morning is the idea that you republicans want more tax cuts. have you had enough tax cuts in south dakota? sen. rounds: we want to make it clear that the personal tax cuts are permanent. i think that sends a message to the market and it sends more confidence into the economy. going to go to a diner in vermillion, south dakota, and sam brought you a -- andn dollar deficit say i brought you a trillion dollar deficit. what are you going to do with

chronic deficits? sen. rounds: we do not have a trillion dollar deficit. we have a $21 trillion debt to begin with. it will go higher all the time. tom: this is critical. midwest cannothe -- $21 a $21 billion deficit. what are you going to say to republicans about what republicans have rocked in washington -- have wrought in washington. sen. rounds: the only way we get out of these deficits is if our economy grows faster. during john kennedys time they reduce the taxes to increase the economy. ronald reagan was successful in increasing the economy by reducing the tax dollars coming in.

washington does not have a taxing issue, it is a spending issue. we have to reduce the number of taxes. until republicans actually start looking, for the first time in 44 years, at the entire budget -- right now we spend our time and we vote on 20% of what we spend. america has to start facing the fact that we are spending 4.3 chile and dollars -- $4.3 trillion. francine: senator, thank you. our coverage of the imf world bank spring meeting. we'll be talking to the central bank president of brazil at 11:00 in new york. we also speak to the french finance minister, the german finance minister, and others. this is bloomberg. ♪

francine: good morning, everyone. tom and francine covering the world bank and the on next spring meeting. theresa may's brexit vision suffered a blow when the house of lords voted against government plans to leave the eu customs union. we spoke to the u.k. shadow chancellor at our european headquarters in london. are going tods continue to defeat this government until we get a sensible compromise. i think it was staggering last night. if i was theresa may i would be saying the day is over, we have to get a deal around the customs union, let's talk to the working-class party. u.k.ine: that was the

shadow chancellor speaking to us earlier. let's get to david merritt. great to have you joining us. the house of lords do not have any direct power, so what does this do. we want that they said theresa may to stay in the customs union, does it embolden the conservatives that want to remain with the eu? it is interesting listen to david mcdonald letting the move from the house of lords. he has never been a fan of the upper chamber. the defeat of the government and the scale of the defeat is surprising on all sides. former government ministers, people like the former chairman of the conservative party voting against the government. it does not have any teeth in the sense that the government does not have to change its policy, however the scale does show the strength of feeling across the upper chamber and does potentially reflect the makeup of the votes in the house

of commons. that is where the big fight is going to come in the next few months, when this bill comes back into the commons. looking forl be some sort of compromise that can keep both sides of her party, pro and the anti-brexit side on the side. is there a compromise that is reachable on this? we do not know. a lot about it deals with the language. union, stayingms in the customs union, or what the government currently says which is a new deal. oftainly, the remainders people who want the closest relationship with europe feeling more emboldened after this boat. -- after this vote. francine: what comes next? if you stay within the customs union it would made you need to open the door to immigration. then you ask yourself what is the point of brexit? thed: the key thing about

customs union, it is about frictionless transfer of goods, not about freedom of movement. that comes with membership of the single market. what is under question now is the customs union and this is what businesses want. that means you can send your goods to and from the borders without any question. it also solves the problem of the northern irish border which has proved to be such a sticking point. this will be the debate. this bill comes back to comments in the next few weeks and months and there will be a debate. there is a separatist amendment also that will be to a vote, with stronger wording than the one that was passed last night in the lords, committing the government to staying in the customs union. this fight will continue over the next weeks and months. in the meantime, maybe we can expect the government to come up with some wording or proposal for the european union and which will keep both sides at the table. merritt, thank you so

much, with bloomberg news in london, head of all of our european news coverage. -- in york, there is london, live picture of the prime minister at the event. i want to move forward and come back to what we have seen within all of this is the idea -- of austerity. jason, when you are in the white house you at the study austerity. nathan, you wrote extensively about what we learned from austerity. start with let me you. what did you learn about austerity? nathan: the emphasis on austerity was misguided. i think it is much more important to focus on what are those policies that are going to facilitate growth?

as you do that, one of the things you want is a disciplined fiscal policy. the problem with emphasizing austerity, it sounds like that is the beginning and end of economic policy, when it is only an important part. to create a positive part for investors and consumers. tom: our american austerity -- clearly we do not have austerity now -- our austerity is defined differently than europe great what does our austerity look and feel like? oscillatesausterity massively. five years ago the imf was criticizing the united states for cutting the budget deficit quickly. rate wasunemployment still elevated, interest rates were stuck at zero, there was a huge movement to remove fiscal stimulus in the united states. now, with the unemployment rate at 4%, we are doing the fiscal

stimulus we should have done more of five years ago. defined inut and american culture in a world where you have that type of oscillation not tied to the economy, i think -- tom: with your experience at the white house to go from 10% unemployment of 4%, that is extraordinary. who do you want to give credit to? let me guess. [laughter] francine: let's get back to that. i will cut you off. jason and nathan, but stay with us. -- both stay with us. the imfp, live from spring meeting, a conversation with the south african reserve bank leader. that is at 2:30 in new york. later on we also speak with the south african finance minister. this is bloomberg. ♪

♪ .om: good morning "bloomberg surveillance" from

washington. how about a single best chart on the back stories i've seen on the meetings. you know the chart, it is the deficit to gdp of the united states of america. we are at that yellow line. years ago, the clinton surplus in the middle. nathan sheets is with us from ugi am and nathan -- and jason furman -- nathan sheets from pgi . and jason furman what to do about deficits. senator rounds from south dakota says we have to look at the entire budget. what part of the budget helps us best to begin to get back to some form of fiscal responsibility? gaphe deficit is the between what we spend and what we tax.

more spend less and tax and we will have a smaller deficit. you cannot just do it through entitlements. >> you can't just do it on the spending side. we are spending less in that area than most other countries. i think we could spend even less in that area. francine: the base are going to love that. simpson,u had bowles it had the right model. does president trump have to redo bowles simpson? jason: i think the first step is to say everything is on the table, we will deal with revenue, we will deal with spending. that is the first step, put everything on the table. if everything is on the table, i do not think there is any conversation. nathan: i think jason is .bsolutely right

overlong horizons, the united states has wanted to spend at gdp,f gdp and tax 18% of which has meant we have had a sustained 3% of gdp deficit cap. if we want to address that, it is going to take action on both sides of that equation. francine and adjacent, do they do this better in the united kingdom? francine: they do but then they do not get reelected. if you do austerity, than the investors are happy but people are out of office. nathan: they do the rhetoric better. they articulate a commitment to fiscal discipline, which i see as being different than fiscal austerity. i think fiscal austerity is saying discipline is first and foremost.

the context of strong macro economic policies is constructive and can win elections. francine: i think that was probably true four or five years ago. if you look at the populist wave , is it not a vote against austerity, i am thinking of italy and some of the others out there. nathan: my sense is as the populism rides we will see further stresses, this is certainly true in italy, on the physical position -- on the physical -- on the fiscal position, and i think those are the triggers that will generate changes in policy. tom: what does dr. hassett need to do. can get it done but he is lonely at the white house. nathan: i think you should get

them to focus on supply-side economics and trade. that is one of the most important steps. you cannot do these bilateral trade deals, one after the other. there is something called tpp. those are large and consequential. tom: we will do this again. jason furman and nathan sheets. we will continue this dialogue on bloomberg radio worldwide. stay with us for import interviews throughout the day at the world bank in the international meeting. this is bloomberg. ♪

♪ alix: don't mess it up. imf upgrading global forecast, as long as trade does not derail it. meetings kick off this morning. yield curve here.

yield curve here. not only flattening by inverting. could a slowdown be on the horizon? commodities crushing it. aluminum, nickel, kid, outshining precious metal. david: we come in on a shot of midtown manhattan. welcome to "bloomberg markets," on this thursday, april 19. alix: blackstone reporting earnings -- solid. cents a share beating estimates. first-quarter net inflows, over $18 billion. david: everyone is rushing to blackstone. interesting to fit in with the bank earnings. the other financials. blackstone is attractive. alix: