francine: shares had lower. we hear from the chief executive. washington says it's cautiously optimistic on reaching to do with beijing. president macron goes to washington. the french leader highlights his special relationship with trump ahead of his state visit. can he convince the administration to give europe pass on trade? ♪ good morning, everyone and welcome to bloomberg.

i'm francine lacqua in london. this is what the markets are doing and we are getting a little bit of manufacturing data out of the euro area. pmi's a touch below forecasts. that rises better-than-expected. this is really what i'm looking at. it's the 10 year treasury yield. it's close to 3% and the trend is going that way. the dollar also holding on to last week's advance. i'm also looking a pound. this is for a simple reason. we won't hear a soon as you want to will hear about the customs union and what theresa may plans to do with that. the not really proving on -- not really moving on the back of the pmi numbers. coming up on bloomberg from thence, we hear

executive and then little later we have jacob frankel who is the chairman of jpmorgan international. then jeff curry from goldman sachs. let's get straight to the first world news. emmanuel macron and washed and later for the first state visit of doldrums presidency. he will be leaned on to take off the america first policy. his record of consider -- of securing con freight concessions remain patchy. speaking on face the nation, mohammed thomas recessed the islamic republic could restart its nuclear program if sanctions are reimposed on tehran. everybody has advised administration that this is not a bilateral agreement between iran united states and withdrawing from it would be

seen by the international committee as an indication that the united states is not a reliable partner. iran has many options and those options are now present. nejra: the uk's prime minister is battling to prevent a cabinet revolt. according to unofficial, theresa may's inner circle thinks she could be forced to accept staying in the customs union because parliament will reject her plan to a draw from it when the issue comes to a vote. such a move could trigger a challenge to her leadership in the ruling conservative party. germany's social democrats elected the party's first-ever chairwoman but struggled to heal divisions that expand everything from russia and the european union. she seen as a relatively poor leader met -- for a

meant to revive a party that posted its worst results since world war ii. more of a quarter of the delegates casting ballots for a candidate given a chance to win. in nashville, tennessee, police are searching for a suspect in a restaurant shooting that is left four people dead. a rifle awayestled from the shooter preventing more deaths. polices were taken by but eventually given back to his father. global news powered by more than 2400 journalists and analysts. i'm nejra cehic. this is bloomberg. francine: let's kick off the show a trade in the markets. steve mnuchin says he's considering a trip to china admitted a dispute with beijing that could derail the global economic upswing. he says he's cautiously optimistic about reaching agreement. our editor is in hong kong. of theays it's aware

request. isn't being considered a breakthrough? i think you can take the reaction to it from the markets. it's not being seen or taken in asset classes is a big breakthrough the trade war. i think it's just the development and we can see it in the way china has reacted. commercee minister of acknowledging that they were aware that a trip may be in the works. today, had in beijing the foreign ministry had their daily briefing where they usually brief for journalists and there was no mention made of any planned trip. not a breakthrough but just a sort of development in the trade war front. francine: what would be considered a breakthrough? probably if both sides agreed

to stand down and if they agreed to take away their threats on the u.s. side on as much as $150 billion worth of goods and from china, that retaliation from a couple weeks ago on $50 billion worth of goods. i think they would have to withdraw those threats completely and maybe come to some agreement on their grievances. particularly on the u.s. side. to really put this issue to bed. francine: thank you so much. we will be in berlin later the week to talk about chinese investment in europe. what does a lessening of trade tensions mean for markets? especially as the u.s. 10 year yieldyield -- 10 year nears 10%. our guests joins us. thank you both for joining us. let me check with you. tensions,k at a trade

it was very clear that the more anxious about it. they didn't really believe that it would be ratcheted up. what you're feeling? word weus is not the would use the we are monitoring that's and we are of the opinion that we go further down the path of exclamation, it's going to be bad for the global economy. there's no doubt about it. i think that's the majority opinion of economists. not it willr or continue, i think that's hard to guess for people like us. we are not really in the room with these things are being discussed. the only thing we can do is look at where we have gotten already and whether we can make any deductions from here. my personal opinion is, we haven't heard the last of this topic. from people that are the room, it's also very difficult to say what a trump missed ration wants because they're not all talking from the same sheet every day. >> i think that's right and i

get the sense, and he says we are not in the room but i get the sense sometimes that this room has gotten out of hand. it doesn't really seem to be an awful lot of logic to this. i think everybody knows that both sides will get hurt if there's a trade war. i do get the sense that the chinese of already made some concessions. think they are hearing the u.s.. they do understand with the u.s. is coming from. but it is down to the u.s. to make a peace gesture. maybe mnuchin's trip to china will be the trigger. as you heard the report, both sides do have to stand down. the question is who will be the first to blink. what is being priced into the market? i have a chart which of two and a second come to treasury yields and i know that's mostly monetary policy but the fed also

have to look at trade. peter: one of the things i do reckon you would see it is in the volatility because one of the things you do see in the environment where you have relatively calm situations, volatility can come down. one of things we have observed already is a particularly risky asset. that's the way where i think we should see it but frankly, even there, the implied volatility tells us were going to be ok. the market is not really pricing a lot. let me bring you over to my treasury chart. something you would deftly appreciate. raskin ourselves whether this is -- whether this bond bull market is over. go to g tv and take so these charts and use at your meet. if you look at the yellow line, the trendline, which was broken

in the final quarter of 2016, put that in perspective for us. peter: you've struck livio line, at some point you're going to go below zero. two extent, we're going to have to say there's a limit to where they can rally. theiew is that given absence of inflation in the u.s. , given the changes to the way the labor market seems operate, i'm not overly concerned of a massive tick up and inflation anytime soon. i don't think are going to see the next 30 years showing the same trend. bring youlet me just over there. we have it on the screen. it a big psychological difference of it touches 3%? peter: everyone is making a big fuss about 2% i'm not that bothered.

it's 3.05ink whether are 2.95, it makes that big a difference. , how does ite is come about? lowe just have relatively inflation and inflation expectations and the fetish is pressing ahead with crist rate hikes in the real yield a shooting up, that's clearly a very strong tightening of monetary and financial conditions. if that's the case, we will have an impact on the economy. however, we believe there's a decent chance that wages to go do see not necessarily a resurgence of inflation but a return to more normality. if that's the case of the weakevens go up, and i think have a very decent chance of staying north of 3% without being to disrupt with. thank you both. you both stay with us.

you can always watch the program using tv as well as the video stream. you can follow all of our charts and functions by clicking. can ask the questions to our great guests. up next, ubs disappoints. shares sink as digesters invest the banks first-quarter numbers. we bring you our interview. this is bloomberg. ♪

♪ economics, finance, and politics. .'m francine lacqua let's talk banking. ubs shares are lower as earnings disappointed the market but we

show -- but we spoke with the bank's chief executive this morning. matt miller asked of the investment bank unit was mostly responsible. >> it's a committed to the fact to a veryddition strong set of reported numbers, the underlying numbers in terms of operating profitability were starcrossed the board, particularly in a be of management and from a geographic standpoint in asia and america's. were contributing to the strong performance. what does this mean for the investment bank which is struck down in their reports last week that you are debating internally , the investment bank. >> if i can say, that kind of report was some poor reporting. i will say if you look at our results on the standalone standpoint of you last five

years, is been very strong. we are very competitive and we and investment banking is not about shrinking, it's about growing. it's very important to our wealth management and corporate franchise in addition to serving our clients. return,with the 25% on it's very difficult to see the merit of those reports. and 25% rise in equity trading in dollar terms. you are generally in line with what the u.s. investment banks reporting as well. do see that kind of growth continuing? >> to see that those results are in line with our competitors little bit of an understatement. equities, we account into our

investment banking and we would've had a 37% increase. in dollar terms. i think it was very strong. >> that would be what u.s. banks are reporting. >> absolutely. >> what you expect from the investment bank? yourry ports you wanted bankers meeting with 200 300 clients face-to-face every year. is that a key part of the growth? >> since there's discipline and trying to go out to go to clients, creating a benchmark, i think you guys also have some kind of need to do x number of interviews or write a certain number of reports and our focus is to make sure we go to see ,lients, give our best value

and keep it disciplined. i like the fact that made the comparison between the headlines in the clients but where dcf growth? when you see opportunity? one of the interesting things is the growth has to come with a cost reduction of the same time. that's what investors are focused on. clearly he is very happy about the investment banking and he says their growing that not shrinking it though the size of the investment bank is smaller than has been in the recent past. they are also growing their wealth management and asset management build -- businesses with a lot of inflows. almost 20 billion francs in the wealth management unit. those missed what the street was

looking for unlike the investment bank profit numbers. it's the cost that is the bottom line for them. they have been going up because of mifid and other issues. they have really got to keep those costs down. one of the most interesting ways, i think him would be to combine back-office operations with another bank and he said they have talks on that progressing well. investors wantdo to know? you mentioned the wealth management. know more about the strategy for the management in asia? i know some of their competitors are very focused on that region. asia is one of the key issues we talked about this morning. the u.s. is also a huge part. so much of the wealth management money comes in dollars or and currency that is pegged to

dollars. ubs is actually going to switch its reporting from frank's two dollars in the near teacher. they expect that to come in the second half. wealth management seems to be going well. it's just a management -- is just a question of the cost. and have to keep that down is one of sergio's big jobs. he has headcount to reduce. they will be able to control costs with investments in technology and i.t.. that's for the back-office combination comes the play. be interesting to see if they combined with credit suisse or find other partners. help them keep those costs down and reached their margins. francine: yeah. he did seem like he is convinced the bank -- that he has taken

the bank in the right place. he made a plan and is executing on it and he has some that arets here helping to take the bank to the places he wanted to go. where does hes, see the future of the investment bank and does he really want to in thoseing it businesses adventures the focus on? they are doing quite well in equity trading. and then what he wants to do with wealth management. will he serve with the investment bank more of their wealthy clients as he intended to do? francine: thanks so much. great interview. still with us peter schappert and peter dixon. when you look at banking, this

is not only about interest rates going up or down but also how you manage banks and whether you have the right amount of cost-cutting. d.: dr mifid cause a huge amount disruption but i do think interest rates are half of what is necessary for a decent recovery in the banking sector. let's face it, we make our money by borrowing short and lending long. when you have a very flat yield curve, that's difficult to do. we would love to see high interest rates. to how far you can cut costs because at some point you need to reinstall the investment in order to benefit from high interest rates. it's a tricky one. they have another year or two of pain to go, i guess.

french banks really compete with u.s. investment banks. back in the early part of the decade there was a belief that european banks can go out there and create a global platform but it's proven much more difficult to do that. i think the commish the mifid and ecb actions, not to mention which helped to quell business across the board, have made life more difficult for european banks. that weonably confident will be able to make some progress. the u.s. banks are pulling ahead. if the fed moves to her three times this year does it force the ecb to act a little bit sooner? think what don't

other central banks are doing, including the fed, or the ultimate driver of ecb policy but if the underlying factors are in place, if the global and we is strong, debated earlier on the radio whether we have a temporary flip or not. i think we have a much more sustained recovery in the euro ecb will be in a position to start raising interest rates but of the best dependent mother the fed goes 2, 3, or four times. but i don't think that's dependent on whether the fed 's 2, 3, or four times. i don't necessarily know when they will start that pass but of course, the economy is very closely linked to what the ecb does.

the snb does is also closely linked. if ecb only starts very very slowly removing the interest rate policy they set in 2000 19, i would be surprised that we see something significant a faster than that. our you constructive overall? i think i am by star the years say we had five or 10% upside. i'm perhaps a little bit less policy -- little bit less positive now. you may get five or 10% from here but i think he requires the geopolitical situation to call down somewhat. for no obvious problems with the side of the fed. stability is the big thing for all of us because many european companies generate the earnings outside of the european market. they both stay with

us. bloomberg users can interact with the charts using the tv browse recent charts featured. ones onsome really good treasures today. up next, tempering trump. emmanuel macron makes his first state visit to the u.s. today. and of shakings hands on a less protectionist stands? this is bloomberg. ♪ welcome to the xfinity store.

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francine: economics, finance, and politics. i'm francine lacqua in london. emmanuel macron arrives in washington today for the first state visit of trump's presidency. his goal is to water down the protectionist stance. despite building bridges for

year, his record has been patchy. he is points this month's missile strikes against syria as a victory that has failed to keep the u.s. and the paris climate deal. we asked him about the risk of a trade war. >> i think there is a risk of having a trade war between the united states and china, between the united states and the rest of the world, and i think we should do our best to avoid that trade war which would lead to less growth, less employment, and more difficulties. francine: and the more immediate term, it's about convincing the u.s. not to impose tariffs. we cannot accept france and europe to be hit by new tariffs coming from the united states.

is the fullly want and permanent exemptions of for american the new policy. we cannot understand policy that could jeopardize growth of private companies in france or the united states. we are waiting for the full and permanent exemptions from the tariffs on europe. do you think you will be getting some kind of indication? >> i hope so. we have a very good relationship and i think it allows us to have very pure and frank discussions on the question of trade. in mondaye meetings -- on monday in washington. hope that they will

understand. we are allies. states and france, the united states and different we cannot allow new tariffs. francine: with a be the main talk aboutll that be technology? >> there will be other topics, of course, but that discussion of trade will be one of the important questions that will be raised. opportunity for those g20 and g7 meetings to explain the political position of france and of all different countries. we want the full and permanent exemption and we do not want to run the risk of having decisions coming from one of our closest allies.

the united states jeopardizing growth and economic situation in france. -- francine: how much of the talks were on china? >> we will have to engage china and the one china to make commitments. build a new help us future as far as traders concern. the right solution is not to engage in any kind of war against china. the right solution is to engage china, to have china on board, trying to improve the institutions related to trade. looking at the current situation, there is a weakening of institutions related to trade. new order asild a

far as trade and economy is concerned and they want china to be on board with us. that was our conversation with the french economy minister. macron preceded his visit to washington with a direct appeal to donald trump on u.s. tv. >> i will advocate for militarism in front of congress which means playing altogether in order to reduce the influence and support of some rogue states. you cannot make a trade war with your ilife. ally.h your francine: what does macron actually want? it's not just about trade with the digital economy. what are israel chance of a break? what are his real quiet ans -- real chances of

breakthrough? >> he started his charm offensive on fox news, the preferred tv channel of donald trump same we cannot make a trade war with your allies and also saying that there is no plan b when it comes to the arendt nuclear agreement. as you can see, this visit is going to last for three days including two dinners with the trump's. one at george washington's house and one on the tuesday at the white house. congress onaddress wednesday and this is when he will be speaking about multilateralism. when it comes to trade and also international diplomacy, they will also discuss syria, the recent joint action, so a lot on their plate which really is two priorities are iran and trade. francine: macron is the first of a hosted by president trump for

a state visit. defective --g the defective most important people in europe? it does seem so in the eyes of the white house. macron hosted trump for bastille day, and they're trumpamous handshakes, really enjoyed the relationship with micron. which is not the same case at all when it comes to angela merkel. the u.s. has criticized germany for not taking part in the airstrikes in syria. disregarding, of course, germany's historical aversion to military intervention and they have also criticized germany for the big trade surplus that germany has with the u.s..

macron will try to take advantage of this. he said last night on fox news that the two have good relationships because they are the two mavericks on both sides of the atlantic. francine: thank you so much. how important is his meeting? still it with us are peter and future. peter dixon, this is change in any way, shape, or form your equity valuation? can micron go to the u.s. and get a trade deal on exemption that lasts forever? peter d.: i don't think so. this is all about politics and cementing relationships between the u.s. and france. think it plays a big role in market thinking. you will get some positive noises my think generally we need europe to speak

together with united states. does is give a boost to the french economy at the moment? you have a president that is very outward looking or judy to see more reforms in france? before you say that president macron's duty successful job or not. we think it's the domestic side that will master way more. we see the figures in france and they're clearly improving. to do with appearance a lot has to do with the things that are being done on the ground. if i may say, one of things that i think is very important and would like to see, one thing that i get in u.s. the earlier about the rationale behind whatever the u.s. and mistresses doing. it appears there much more

comfortable in dealing with single states rather than with big entities. why? you have a lot of power. you are very big and powerful. if you do was so many that is smaller than you, it's much more likely that you get what you want. if you do with some big block or someone like china, it's more difficult. the key to assess what the u.s. demonstration implies for europe is whether they manage to divide and conquer in a way where the europeans will be to hold together. i'm confident that in particularly when it comes to larger companies, all these guys will realize that their strength comes from staying united. i'm pretty sure about that. francine: what is the current state of reforms in france? the president has had to stave off strikes every four or five days. peter s.: it's one of the key issues. the question is whether this

time around, because we have been here before, whether this time around we connection stay the course and get the reforms through even against some of the pressure that is being applied by special interest groups. perspective, we would like to see those reforms going through. it would be positive for the economy and positive for evaluations. the market would like that. if we see a backtracking, the market would take a negative term. the other angle is that he wants to talk about digital taxation. i imagine he will bring up the googles and alphabets of this world and why they're not paying enough tax. industry that will be shine away from because of regulation orders to look attractive? peter d.: i would be cautious. the u.s. index took a real tumble in march. it subsequently made somewhat of recovery.

it does suggest that the facebook induced concerns of affected the industry for weeks ago appeared to be dissipating somewhat. i think the issue of digital privacy, and taxation will all come back onto the agenda of the course of the coming years. i rather get the sense that some of the best years are behind us. it's not like they're innovating at the same pace they want to either. wouldn't necessarily be underweight in the sector but i wouldn't usually be overweight. joining: thank you for us. both of you stay with us. plenty coming up including destination europe. bloomberg crunches the numbers on chinese investments in the region. and taking back control. theresa may battles to avoid a cabinet result. this is bloomberg. ♪

♪ francine: this is bloomberg surveillance. i'm francine lacqua in london. political and corporate leaders have been scouring the globe for more than a decade, buying assets from asia and africa to the u.s. and latin america. less talked about is china's spending footprint in europe. bloomberg analysis shows investments of at least $218 billion in the region of the last 10 years compared to the u.s.. let's dig deeper into the data.

join us now is an crawford. study. what prompted you to look and this? it's risen to the top of the political agenda certainly in western europe. speech --kel gave a rarely gives a speech without mentioning china. gave al macron remarkable press conference at the end where he was calling for europe to develop some kind of strategy to combat china. but it's serve away the idea that not all investment is particularly welcome. there are concerns developing and parts of europe.

francine: how is the investment spread? largely inused germany, france, and the u.k.. but that's in terms of the pure dollar values. it a huge spread of different types of investment. if you go to the south and east of europe, there's a look at chinese investment in critical infrastructure. companies.ocused on concernny, there's about chinese investment. in alls a huge spread different centers from east to west and north to south. we will have plenty

more from an crawford in berlin throughout the day. you can also read the full story on bloomberg.com or your terminal. we want to keep on saying that there are no winners in a trade war but could you argue that in the immediate term, if there was a trade war or trade tensions escalated, between the u.s. and china, that more chinese money would come to europe? it's possible but however as the study shows, while the chinese money is coming to europe has been to buy up technology and ideas. you might find that if there is a trade war you get some increase in chinese investment. toe not totally keen continue selling our technology in this way. i think therefore, in a sense, the huge wave of chinese investment might be seen as a double-edged sword. francine: do you agree with that? peter s.: i do.

one of the things i think it's very important in this and sometimes overlooked is that if you have a trade deficit is the u.s. clearly has, then as president trump says, it's easy to a trade war. as he said. on the other side, there is the capital that is required that goes the china and ultimately the investments that they are making. in u.s. treasuries, there one the biggest holders. also in some key infrastructure. the question then is, to the capital owners or the capital employers, what do they want? are they simply chasing the best returns that they can yet? just for the money? or do they have some other alter your motive? this is really where the question strikes. what do they want to achieve with their investments, and what can they do it tensions escalate

? if you own key infrastructure a new a person who decides what we want to do, and closely linked to a foreign government, this raises concerns and i can see that. this is something we should modify -- monitor not only if there are tariffs for what is going to be happening on the other side of the leisure -- ledger. francine: thank you both. next, the u.k. prime minister is trying to avoid a cabinet revolt over fears she will be forced to keep in the customs union. pound with talk boe mark carney. this is bloomberg. this is bloomberg.

♪ economics, finance, and politics. i'm francine lacqua in london. theresa may is battling to avoid a cabinet revolt amid fears she could backtrack on her promise to leave the customs union. the pressure comes from parliament. there could be a leadership challenge from skeptic members of the leadership conservative

party. is it all about the bank of england? mark carney said it's not a done deal. also still here are peter and peter. we have a great chart. cable and weook at look at it as carney bounce back expectations for a rate hike. once more significant? the customs union or dialing back? in the short run, carney, and i think the relationship to the euro is much more important. in the cable chart, there's a lot of weakness there as well. long-standingugh trading regime against the euro but we come back into it. i think carty's intervention was very important.

in the long run, i think it's much more important how the relationship between the eu and the u.k. develops and for markets, everything that is more conducive to trade and potentially there for more conducive to growth should be positive and vice versa. it's the chart has been sideways. peter s.: what you can't see is that if you draw a line around change, what you see is that is a level that held for a very long. of time. -- for very long amount of time. last week we did break below that in that only change when carney came in. i don't know it's more important equities in the u.k., bit of both? you could have a challenge that

may actually give early elections to labour party but then the carney reversing back these potential interest rates. what matters for u.k. equities is the pound. short-term,he that's what matters. longer-term, i tend to agree that the object of the u.k. is a -- you kick him is a whole, the registered we have the rest of your matters. 70% of u.k. earnings generate that. particular have set of europe. it's not such a big deal for the ftse, for example. as it would be for other parts the economy. once price then? is there customs union or not? peter d.: i think it's a heisenberg's uncertainty principle.

it simultaneously does and doesn't happen. markets expect some kind of brexit debra mao damaging one. francine: thanks her join us. morning, we'll be sankar, theacob chairman of jpmorgan international and commodities. this is bloomberg. ♪

francine: ubs disappoints. hares gos bank lender s lower. trade truce. cautiously optimistic on a deal

with beijing. goes toident macron washington. the french leader highlights the special relationship with trump ahead of his state visit. can he convince the administration to give europe a pass on trade? this is bloomberg surveillance and i'm francine lacqua. tom keene is in new york. we are fresh back from our trip to d.c. it all goes back to trade and what we hope we will be finding out this week. tom: jacob frankel to join us this morning. while we heard on the normal and then the fiscal debt on the u.s. was one of the back stories we heard over those three days. francine: plenty more on that and now here is taylor riggs. and then the fiscal debt on thetaylor: president trs tempering his optimism on north korea.

he says only time will tell how things will turn out with north korea when he meets with kim jong-un. kim has promised to halt nuclear testing. he says north korea must dismantle the nuclear arsenal. the trump administration is hinting at a possible truce in the trade fight with china. over the weekend treasury secretary steven mnuchin says he could make a trip there and is cautiously optimistic over reaching agreement that would result the differences over trade. in kabul, 57 people were killed state suicidec bomber attacked a voter registration center. state saysc they were targeting the min ority. sentenced to 20 years in prison. he is leaped to be the only

surviving member of the group that carried out the series of attacks in paris that left 430 people dead. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. equities, bonds, currencies and commodities. yields are grinding higher -- that is the right word this morning. the futures tell us something regarding the steeper yield curve. dollar strength, oil churning. 17.46.f there is a 30 year bond, 3.00. the 10 yer will show that. the 30 year blows up to 3.18%. francine: i have a very similar data board to use. treasuries are weaker on the back foot, extending the declines that have pushed the world's benchmark yield to

almost 3%. investors are looking at the outlook for international trade. here's is what i'm looking at, the 10 year 2.99%. if you look at european stocks, asia.o have declines in the u.s. is at the bottom, 3% to 4% lower. we're looking at town, not only because we have the u.k. prime minister regarding the result of her brexit and mark carney repriced expectations of a rate hike. tom: we could see that 3% mark during the show today. 5% on the 10 year yield and 20 years ago, the financial crisis of 2007 and down we go with super low yields in 2012 and 20 16, we are now up at that 3% mark, francine. francine: i have one perspective

for you, tom. 1962.hart those back to thank you for such a cool chart. this asks whether this is the end of a bull market. we see the trend going down. if you look at the trend, the yellow line, which we will push out on social media, it would mean it would flatten the yield curve and you see the tenure again, climbing to 2.99% for the first time since 2014. tom: we continue and it plans forward our discussion with the international monetary fund meetings. we do that with the head of all of our economics. simon kennedy joined us years ago. we held court at the plaza hotel in washington as an ported imf statements -- as important imf statements are put out. with us this morning is jacob frankel, jpmorgan chase international.

synthesis ofhis foreign-exchange with our macroeconomics and now our fiscal economics as well. viewerskel, should our be concerned about the new deficits and the chronic deficits of the united states. course, the important issue is to recognize that as the united states is focusing on how to reduce the current account deficit, and the focus is on china, at the very same time, the increased budget deficit operates in the opposite direction because of the end of the day, we see any rise in the dollar tree facet -- and the dollar deficit as reflecting of the account. this shows a general issue. china is an bilateral issue. it is not fitting that framework.

with yourthis wonderful summation on the economic outlook. he drives that forward f today with the ft, which has signed framework on economics. is anybody reading lori dobbs phil? are at thee they u.s. treasury and there was an interesting back-and-forth. from steven mnuchin treasury , what theynd the imf should be looking at. the imf telling the u.s. that the entire work is centered in a multilateral way and the u.s. fighting back, saying the imf needs to step up. it was the kind of weekend in one -- infree which everyone was trying to find allies. , when youdr. frankel look at the imf, people were angry, asking how they could

measures.tectionist could it get messy? jacob: i would hope they will prevail. as i just showed you, the numbers. growth is good. economic performance is reasonably well and labor markets operate well. inflation is moving towards the target and people are worried. and why, the main reason today is the danger from protectionism. my only because protectionism is a bad thing, not only because of interconnected world and it means, it is dangerous. new elementause a entered the discussion, which is investors are now slowing down. they say there is a lot of uncertainty. how will it result? beyond the trade, it is uncertainty that holds investment and without

investment, we will not have growth and we will see this to be temporary. a would hope all of this is reflection of some kind of negotiating tactics, rather than a strategy of cutting the rates. francine: the central bankers we spoke with were so aware of this concern that they would try to mitigate the effects. if there anything they could do to get cheap executives to reinvest? simon: we were talking about the fixing of the rating over the weekend and doing more to improve the pains of the economy, so to speak. investors say that one thing that would provide some certainty are fewer tweets from administrative leaders, about opec and currency devaluations from china and russia. they do not necessarily add up when you look at other things

with certain pressure on the administration there in clari ty. tom: simon, i am glad that you mentioned that. enkel, were you ever tweeting asj the governor of the bank of israel. jacob: when i was governor, the world reading was reserved. when the issues of communication is the real matter, clarity of communication, transparency and a dialogue with policy are important. in this regard, the statement that said secretary mnuchin is planning to fly over to china to renew communications, that is good news and i hope that indeed it will be implemented. because let's face it. safe for the united

states and china to get into slippery slope. issue is each could come to the table with a different strategy. one has the tactics and the other has the strategy. for the united states, the uncertain element is how to deal with the property rise of -- the intellectual property rise, especially in the two technological area. and for china, they want to expand into the world more and more. about where think the world was. i think many worlds in history tolt this due miscommunication. we should avoided at all costs. , do you thinknkel the current governor will get another term and local media said you were a candidate for the job. are you? that she will get another term. she is doing a good job. i will help you with the second

issue -- i am not a candidate. francine: all right. we will get back to that in a second. jacob frenkel from jpmorgan. both stay with us. tom, there is excitement in london. going into labor with her third child, she is in the private part of the hospital. and the duchess of cambridge is expecting the third child. you probably know more about this than i do, tom. tom: if it is a boy, they might go with simon. francine: we will be right back. this is bloomberg. ♪

taylor: this is bloomberg surveillance and i'm taylor riggs. walmart is on the verge of taking a majority stake in india's leading e-commerce company. according to those familiar with the matter, the largest retailer will spent $12 billion to purchase up to 80% of flipkart. the major investors are now on board. -- the attempt to purchase a stronger position. the company found problems with product development and other data at akorn. akorn denies the accusation. and the newly combined wealth management unit at ubs did not get off to a good start. the business posted

first-quarter earnings that missed estimates. that overshadowed a star performance at the ubs investment bank. the ceo spoke to bloomberg. quarterok at the first of client activity. we had an exuberant january, what you describe the seasonal actors. frome productivity levels february and march similar to what we saw during 2017. taylor: that is your bloomberg business flash. francine: bond traders are agonizing over the u.s. yield curve and the got a bit of a break. such speakers are leading traders to find out other expectations for more rate hikes , meaning two-year yields reach the highest level since september of 2008. simon kennedy says global policymakers are adopting a glass half-full approach to the

economy. still with us, simon kennedy and jacob frenkel, the former governor of the bank of israel. the because you read headlines, how difficult is it to understand the fed? there are so many new people coming on. is there a danger that communication is a little bit more wobbly than usual? simon: when you look at the people donald trump is putting into the fed, he is picking mainstream candidates. it is different from the supreme court and the rhetoric on the campaign trail. which is perhaps more critical of the fed. people like rich clarida and jerome powell are fairly mainstream economists and the debate of the fed is hiking three or four times. it is not as extreme as we have seen in the past. they should be trying to divide that path and requires them, the

situation within the u.k. and theover the last few weeks, recalibrating of expectations. it is also for the markets and investment traders to work out what they think the passes, and see if the fed will match that path. it is not for them to pull the fed into a certain path. but we are confident it could go three or two more times. itncine: the past, is narrow, or is there danger of the u.s. overheating? and therefore, that will change market perspective. >> i agree with simon on the general perspective. are talking about the forecast, it is reasonable you will have about three more steps this year. if it is three or four or two and become secondary. and same for next year because we are so far away from the historical average. and to me, it is not something that frightens me. robust now.nomy is

it has recovered and the u.s. has to lead the way in the normalization. note that thet to federal reserve normally deals with the short end of the market. the yield curve connects the short end and long end. the long end is not determined by the fed and should not be determined by the fed. it is the budget deficit, the growth, the uncertainty within the economic system and the like. therefore, it is time to realize center's not the page anymore. it is not the only game in town anymore. for the fed, normalization means they get back to the normal corner they belonged, setting the short-term and allowing the market determine the longer end. classet's go back to your

in chicago. we need a lesson on what the weak dollar means to chairman powell. his is good math on a weak from the end of 2016 -- this is good math on a week dollar from the end of 2016 and it goes down. how does a weak dollar assist the fed as rates go higher? jacob: a weak dollar -- the nominal exchange rate has two characteristics. it has a nominal effect on the price index and the things the federal reserve is looking at. termdition, in the short it affects competitiveness, the real exchange rate. this affects real economic activities, but only in the short term. by and large, the fed should focus on the nominal exchange rate development. affect the price

development into the future. we have had some confusion during the last few years. in the old days during president nixon'sd's -- president time, the secretary said the dollar zone currency. recently secretary mnuchin mentioned something that a weak dollar might be good. theink the whole issue is, federal reserve should switch away from the dollar, price inflation, price target, price stability and the like. reflection ofa what is done, rather than the objective tom: of economic policy. tom: what a remarkable thing to have the leaders of france and germany both attending

washington within the same week. what should be their message to mr. trump on trade? we are here together because we are in a multilateral setting. to not set your economic policy aimed at electoral. there are unintended consequences if you aim at china. they are an important part of the economic system. third, if you aim at china, the value chain is complex. if you hit china, you hit your of allies with the products china, like taiwan and japan. the bottom line, communicate, do not shoot. go ahead, send secretary mnuchin. let's diffuse that issue. andre all in it together let's deal with it together in the multilateral setting.

the markets know we are in a multilateral system. the markets worry when policies are done with a bilateral eye. will be the best message to the market, not only because they will realize protectionism is now recognized by authorities to be a bad policy instrument, but also that it will reflect a broader issue. the geopolitical setting today is not only north korea. it is so many areas over the world that require a multilateral approach and if you break the multilateral rules for one part, you also prejudice the ability to use it in another part of the world. francine: dr. frenkel, thank you so much. ourn kennedy, as always,

economic editor as well. later, just very of goldman sachs. stay with us. ♪

francine: good morning. everything back in order. let's talk banking. ubs shares trading lower. we spoke with the chief executive. of this is attributed to the

a strongaddition to set of reported numbers, underlying reported numbers were strong across the board. particularly in global wealth management and in asia and america's. all businesses were contributing to the strong performance. >> what does this mean for the investment bank, which you have shrunk down? reports last week you were debating the investment bank. that report was poor reporting. if you look at our results from view in the last five years, it has been strong.

it is not about shrinking. it is about growing and being successful. it is important to our wealth management and corporate franchise in addition to serving our clients. a 25% return on allocating capital, it is difficult to see the merit of those reports. trading in in equity dollar terms puts you in line with what the u.s. investment banks were reporting. do you expect that growth to continue? >> those results are in line with our competitors, a little understatement. numbers are very strong. in addition to that, if you put the part of corporate equity that we accounts into our , we would banking

have had a 37% increase in dollar terms. u.s.at would beat what banks are reporting. what do you expect from the investment bank? you want your bankers meeting with 200 or 300 clients face-to-face. is that a key part of growth? >> in every business, there is discipline in telling people you go out to talk to clients, create a framework of accountability. you guys have a need to do and x number of interviews or write a certain number of reports. our focus is to make sure we see clients, give them our best value and keep it disciplined. francine: joining us now on the

phone is george. thank you for joining us. when you look at the chief 10-year, it has been about growing the investment bank or shrinking the investment banking business and focusing on wealth management. wealth management was a disappointment. what is next? a, butkresults were we it will reset expectations lower. what comes next is the focus on delivery on the expectation of [indiscernible] demonstrating the operating leverage is there. increasing capital and allocating it in the investment banking.

what does it mean for the wealth management? they are combining the two wealth management units into a single one. does it make sense? the economics of scale coming out of technology, they are focused on that. the grouping of the two divisions makes sense because technology is scalable on a global basis. for the market, it makes it difficult. if you look at the geographics, the results, you can see there are different dynamics occurring in the different regions. it will make it harder to evaluate the success in

different regions. if i bring up a chart of the european banks, barclays, deutsche bank, in red, ubs. they stand separate from what has done.n how far are european banks behind? george: if you look at the profitability against the market risk they are taking, it is lead you have jpmorgan in and then you have different business models, with the u.s. being more domestically focused. the international business is a support business. have barclays and deutsche bank, struggling from a capital perspective and a geographical

product next -- product mix. you will have jpmorgan in the lead. u.s. banks, depending on how the environment does, and ubs outperforming barclays and deutsche bank in europe. tom: thank you for the overview. >> europe is hope in an -- is hoping emmanuel macron can find common ground with trump. mr. trump has not decided to nuclearth the iran deal. they will also discuss trade disagreements. the senate foreign relations committee may vote against confirming mike pompeo, as president trump's secretary of

state. some lawmakers question whether pompeo has the temperament for diplomacy. in nashville, tennessee, police are searching for the suspect in a restaurant shooting that left four dead. authorities say the suspect had been arrested in july near the white house. four guns were taken from him by police and given back to his father. support for shinzo abe has fallen to a low. his approval rating is at 29%, the lowest since he took office in 2012. scandals has hurt the government's credibility. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries.

francine: emmanuel macron arrives in washington, d.c. today. his mission, to seek common ground and water down the president's protectionist stance. for -- inadvocate front of the congress, which means playing together to reduce the -- where are your priorities? you cannot make a trade war. francine: joining us now, our paris correspondent. what are the chances of success? they have tried to play down the chances of success. he has two priorities.

he wants to change donald trump's mind when it comes to trade and iran. -- we cannot make a trade war your allies. isn it comes to iran, macron planning to tell trump the ira nian nuclear agreement is not necessarily perfect, but it is the best option and they do not so he should, remain in it so far. these are the two priorities. advisers have not made their decisions on these subjects. francine: this is a crucial week for european leaders. the president receives angela

merkel a few days after. is trying toon push reforms at home, but they are massive strikes. are there concerns he will have to water these down? is possible. another strike at the railway is starting today. we have had two days of strikes every week for the past month. they have threatened to extend the strikes to july and august if the government does not back down. to hold on to the reform. to the people who asked him the question -- are you going to change your mind in the face of massive protest? he said, no chance. tom: i am fascinated by how he

is perceived in paris. i remember sitting down with you when we saw this moment for mr. in france. does france support this visit? france has been skeptical of donald trump. a large majority of the french do not favor donald trump's policies, especially when it comes to climate, because trump decided to withdraw the u.s. from the paris climate agreement. they do respect the attempt by emmanuel macron to try and forge this relationship with donald .rump we can say macron has become the goto person for donald trump in europe. whether this will lead to policy changes, have results during

these visits remains to be seen. the french support these efforts. tom: thank you, from paris this morning. forget, on your morning briefing, bloomberg daybreak on , coast-to-coast, worldwide on digital. good morning radio london, as well. bloomberg daybreak on bloomberg radio. ♪

francine: good morning. the road foron

about 10 days. it is nice to be back, everything in order. theresa may is battling to avoid a cabinet revolt on fears she could backtrack on her promise to leave the eu union. that is according to one official. a move like that could trigger a leadership challenge from the ruling conservative party. let's get back to simon kennedy. there are a million things going on. was fully priced in until last thursday. that is up in the air. we do not know what is going on. how difficult is it to predict monetary policy for the u.k. in this environment? simon: it is tricky. inflation has slowed faster than they expected in the first quarter. the data has moderated a bit.

we are looking to may to raise rates. last thursday, an interview, we a little pullback in that. rate hikes are likely this year, but not as strong on may as he once was. he is doing it on the background of a lot of moving parts of brexit. francine: this is our chart, carney'scks expectations for dialing back a rate hike. does that move on the back of canle boe expectations or it move on the back of political decisions such as what to do with the customs union? in thepolitical risk brexit debate has injected itself into the markets.

it goes fast and slow. we had calm on the front of brexit, to allow investors to retune into the market. now we have the customs union that will be a big test of theresa may. -- taking back control, one , meansbig debates leaving the customs union, winning back the rights to negotiate trade deals with the likes of china and the u.s. and not through brussels. principlesgo back to . how is the bank of england different than the fed? they have foreigners making policy for the bank of england. it would be unthinkable in america to see that. this, covering treasury. how different is the bank of england because of the foreigners? simon: i would call them public servants who provide

international expertise. mark carney, the bank of england governor beforehand, someone who is well respected on the international scene when george osborne hired him. london'sts the city of international importance and perhaps it is a lesson to the and the u.s.ve administration that they should be looking beyond orders for expertise. i cannot see the senate approving a foreign policy holder. the u.k. chancellor opened the replacementney's coming from abroad. they bring the financial into monetary theory in london

better than they do in the fed discourse. london pays more attention to banking than the fed does. simon: perhaps. that is to do with the structure that was in the u.k. prior to the crisis, finance and voluntary -- and monetary policy were separated. atop monetaryts policy and the financial policy. a lesson from the crisis how integral banking is to the british economy. it is a driver of the british economy. ensures some sense to the central bank has a role in both. hugelymon kennedy, valuable. hope we can steal your time more often. tracy, always talking

commodities and oil. she has an important guest this morning. tracy? >> good morning. i am in abu dhabi. the major talking point here has to be the price of oil, the rise we have seen recently, and what donald trump has been saying about it. with me, jeff curry. .hank you for joining us let's start out with donald trump and his tweets. u.s.pressure could the actually bring to bear when it comes to opec? jeff: it is limited. to physically increase supplies, you are constrained by pipe capacity and pressure pumping capacity. numbers are 1.1, 1.2 million barrels of growth. the other avenue would be the spr.

that requires congressional approval. that requires emergency situations. this is not an emergency situation. 82.50 for jim. when i left, it was $75 per barrel. is it time to lift that price target? jeff: the high prices in oil are high prices anin metal. global demand growth is stellar given where we are in the business cycle. that is associated with strong commodity demand. metal and energy demands are hitting highs. find, you would have to get high prices before you start to see a damage demand.

whateason that happens is we see going over the last 15 plus years, higher oil prices lead to creation of global excess savings. that stimulate demand growth. oil prices go above $40 a barrel, global economy is dead. what happened? they hit global acceleration. isgo up to $70, financial better than we have ever seen. we have a couple of areas that are substantial risk. one is a slowdown in the economic environment. there are concerns in china now. they have slowed. current activity indicates a slow from 5.5 this year to

around 4.7. that is not lori some, but if the trend continues, we take the demand growth and start to ease up on it. that would be my concern. like: donald trump would to know what you think the appetite is for over tightening the market. the current environment, they don't have competition from he oil patch in the u.s. they are constrained physically and financially. we look at the financial metrics, they have to improve. the industry needs to restructure. how many ceos does it take to drill a well in the united states? the answer is 600. the financial metrics need to improve. tracy: the other topic is what is going on with metals given russian sanctions. how long do you think to see

closures of aluminum? jeff: it has mostly stopped now. .ssets were frozen that had an impact in the ability to transfer payments, which led to stoppage. more importantly, what is going on in the input that goes into the smelters. you lost roughly 7 million tons. you cannot store it. you cut production, you cut output immediately. that will hinder the ability for u.s. smelters to restart off the back of the tariffs. where theo ask aluminum is going to come from. this is a disruptive dynamic in aluminum. an economic cruise missile. it is having impact on growth bowl -- on global trade flows.

ton.ised it to $2500 a it is not driven by what is right now. alumina it is a combination of redistribution of assets in part of the reason aluminum is off, the kremlin has announced potential nationalization of the assets and the other is redirection of global supplies. we are seeing that happen. we saw that with the iranian direction. tracy: it is all about timing. thank you for, joining us. we will discuss commodities from abu dhabi four weeks and months to come. you heard a lot of upside potential from jeffrey currie. an undercurrent at the imf and world bank meetings.

reframing $80 a barrel. i do not hear anyone reframing to $100. to talk aboutng in may, june, and july. we begin the week with francine in london. i am tom keene 98 new york. -- tom keene in new york. emmanuel macron and angela merkel visiting with trump. carl weinberg on our international economics, the said and may 2. this is bloomberg. ♪

tom: this morning, yields growing higher. the u.s. 10 year approaches 3%. macron and it merkel -- and merkel approached the u.s.

merkel gets a working lunch. economist, they approach chronic trillion dollar deficits. they do that with trepidation. good morning. this is "bloomberg surveillance." live from our headquarters in new york, i am tom keene. in london, francine lacqua. how was the trip? francine: it was good, but it was short. european leaders will show up in your white house. we have angela merkel later in the week. before that, we have emmanuel macron. it is a crucial week to convince donald trump to stay in the iranian accord. tom: that is front and center with these state visits.

here is taylor riggs. trump is tempering his optimism on north korea. he said only time will tell. nuclearpromised to halt testing, but trump will not make concessions until north korea has dismantled its nuclear arsenal. the trump administration is hinting at a possible truce in the trade fight with china. a tripnuchin may make there. he is cautiously optimistic in an agreement that would resolve differences over trade. in afghanistan, 50 people were alled when a bomber attacked voter registration center. they claim they were targeting the shiite muslim minorities. terrorist attack suspect

shootingconvicted of at police while he was on the run. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom: a quieter market. curves churn, yield steeper. oil churning. a great interview with jeff currie. the vix, 17.5. industriales average, migrates higher. yearine, you have the 10 this morning. is left, right,

and center. treasuries extend the climb that has pushed the benchmark yield to almost 3%. investors weighing the outlook for international trade and growth. european stocks dropping. i am also looking at the pound, theresa may seems to be battling a reversal in --. tom: at chart we all know, down we go. is the financial crisis of 2007. good morning, boston. low yields in 2012 and 2016. in theo, getting us back vicinity of 2011. francine: mark saying basically it is hard to see whether

treasury yields will successfully breach 3%. hillaryour peace by clark. this is why this chart matters. tom: to begin our week in washington with a news flow over the weekend and into these two importance date visits, let's look at something basic. it was great to talk with jared bernstein. bernstein. republicans failed to discuss what is happening with inflation-adjusted real pay for average workers. he goes on to say economist do counterfactuals. the pendulum swings back in one of the things pushing it is the unmasking of phony economics about enriching the rich helps the poor and the middle class.

with us, kevin cirilli. trickle down economics, can the president participate in trickle down politics? kevin: we will have to wait and see. touches down for three days of meetings in the united states. they will plant a tree on the south lawn, they will visit mount vernon, to see george washington's tomb. they will spend a lot of time together. it is going to be interesting because of what the french president said in regards to syria policy. . to bring it back to jared bernstein, that is a globalist type of economic vision, something trump shares in commenton with bernstein.

the question is whether he can recalibrate and recommit to that worldview. birthhere will be a royal in london. the closest we get to the royal thing is a state dinner. give us a lead here. what is the body language, the back of this first state dinner? is he going to serve steak and two scoops of ice cream to the president of france? kevin: the picture of melania trump with barack obama and michelle obama, and the bushes, talk about an interesting display. it was a nonpartisan moment, a welcoming moment to see everyone united.

how he puts his mark on the first state dinner will be dissected every which way. i am going to watch for trump planting a tree with the french president on the south lawn of the white house later this afternoon when mr. macron first touches down. tom: thank you for the state dinner briefing. it is hilarious. we will see what the body language will be like tonight. francine: the handshake, tom. remember the handshake? white knuckles. tom: the c-span ratings will be off the charts with their gavel to gavel coverage. we know he is wearing a brooks brothers regular. weinbergberger -- carl

, saturday is a different day at the imf. what was the backstory you saw the meeting? storiesere were several consistent with the whole thing, about trade, out there front and center. i would like to know if that is going to make a difference with the white house, and the disparity of growth between the emerged economies and the emerging economies. that is something every investor has to pay attention to. the growth is in the emerging world. writing up --.l where is russia and all of this? i could not figure out how russia fits into the partition of economies. carl: they are below the emerging and developing sphere, about two thirds of world gdp.

russia is the smallest of the six countries in that group that are also in the 12 largest economies on earth, according to the purchasing power. game, is a player in this but not as important as china. china is the big player. they are one of the six countries driving the world right now. there was a beautiful piece that explained the way global policymakers are looking at the world, they see risks, but they choose to have a glass half full worldview. are they right or should they focus on the risk? carl: i welcome the imf's caution in this. clouds are forming and things are going to get worse. i think they understate the risks of the likelihood things writtenn out worse than

in their forecast. if you break it down between developed and developing economies, developing economies forecast. in their for the advanced economies of clearrld, there is a slowdown in growth over the next four years. that is important for investors. we go down to 1.5%. tom: carl weinberg with us. lots of other things to speak of. this is an important interview coming up. david is an epic investment partners. we are going to consider the idea of free cash flow, how to measure it, and where the value is in free cash markets. this is bloomberg. ♪

>> let's get the bloomberg business flash. walmart is on the verge of taking a majority stake in india flipcart.dia's major investors are on board. germany ended this attempt to buy a larger position in the u.s. drug business. outside experts found products -- problems with product developments. they dropped a plan for a takeover. accusation.s this in the last few minutes, wells fargo first quarter earnings reduced about

$.16. first quarter net income cut by about $5 billion. carl weinberg with us. i cannot remember these dates. i am too old. you can see the dates here of the fed meetings. there is some point here where thefed catches up with dis-inflationary tendencies of the other central banks. totally dealing -- delinked from them. the story is the labor market. it keeps tightening. the fed has to slow the rate of job creation. not think they have to

wait. they are talking about easy financial conditions, talking about the tightening of the labor markets, talking about sentiment indicators looking strong. there is no weakness in what the fed is telling us. they have told us they are going to look for a slow first quarter because they understand there is problems with the data causing it to slowdown. is the biggest risk? inflation is out of control quickly or it will be slow to come through? isl: the bigger risk inflation has to pick up, wages have to pick up. when it does, it will not give advanced warning that will happen. it will happen suddenly. the fed wants to not have to go quickly to where it has to be, but that it has moved part of the way to that point when the acceleration begins. demands of supply and

have not been appealed. as the labor market tightens, we will get an acceleration of wages. francine: does this have an impact on dollar or treasuries? carl: both, may be. everything we know about economics says higher interest rates in the u.s., it should give us a stronger dollar. that model has been wrong. all of our core models have given us the wrong results for the last year. get a stronger dollar out of it, but it is hard to say that with confidence giving how long economist have been about the dollar for the last year. francine: if treasury's touch 3%, is it a big deal? is a psychological deal more than a big deal. bond yields are going up if

inflation metrics pick up. at 10 year bond yields around 3%. rates are low for people who want to put money to work. israll, the tightening yielding some impact on the markets through higher interest rates, but not slamming the economy. in thiswill continue hour. coming up, this is an interesting interview. what a shock, a government official who is actually -- payroll. linda mcmahon. this is bloomberg. ♪

francine: this is "bloomberg surveillance." about banks. ubs shares are lower. matt miller spoke with their chief executive this morning and asked what factors may be impacting client activity. >> when you look at the geopolitical picture, with retention is him coming up, the picture gets foggy. clients are feeling that. at the first quarter,

exuberanttivity, an january, beyond what you would describe as the normal seasonal factors. muted client activities in february and march. francine: the person interviewing him is matt miller. a great interview. you focused on the bright spots. , which is wealth management. what can the company due to accelerate gains and wealth management? management, the profit before taxes missed the expectation, as did asset management. .hey had positive inflows they did not hit the profit targets analysts had been

looking for. the reason is likely cost. have been going higher. they need to do what they can to keep those in check. forbank has higher costs .egulations, legal fees they have a case in france and endu.k. they cannot see the of right now. higher, trending at about $1.2 billion annually. they need to get that down. they do not see that happen meeting -- that happening until maybe 2019. you have to keep in mind, they have the cost issue and they missed the results. the outlook they gave was also

down beat. they are worried volatility is going to be muted going forward. that helped them in trading. client trading activity could be dampened by geopolitical concerns and trade concerns. rosy astlook is not as the investment banking results were in the first quarter. tom: you can read german. germanll doing duolingo and it is ugly. when you read the german papers, what did they say about bank mergers? does everyone want to stay independent or can you see some of these banks merging to jumpstart synergies? you cannot see cross-border bank mergers happen yet. you hear complaints about that

from the business world. world, brussels, and angela merkel and emmanuel macron has not come together to make this banking union a reality. you cannot move large amounts of money. money in say they have different countries, but they cannot move it back to deal with issues. tom: you hear this in interview after interview, give us an update on deutsche bank. they got through the news flow, great. , for the new deutsche bank? a messy transition for their ceo. add to that issue a fat finger mistake, accidentally transferring $35 billion to an outside account. have the chinese shareholder that had a 10% stake and said they did not want to

reduce it. it dropped to 8.8%. dropped again to 7% and change because of option expirings. no one knows if this will collapse. you cannot take their statements seriously as they keep reducing their shares when they say are they -- when they say they are not going to. francine: we brought you wells fargo first quarter reports, actually they were reported friday, ignore that. ♪ retail.

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♪ tom: "bloomberg surveillance." yield near 3%. tom keene in new york. let's get first word news. >> europe is hoping that emmanuel macron can find common ground with president trump. he arrives in washington today after a year of building bridges

with the present. mr. has not decided to stay with the iran nuclear deal. n hopes to keep the agreement in place to keep iran in check. the senate foreign relations committee may vote tonight against confirming cia director mike pompeo as secretary of state. calculators say they will still bring the nomination to the senate where it is expected to pass. in nashville, police are searching for the suspect in a restaurant shooting that left four people dead. a customer wrestled the gun away from the shooter. suspect arrested near july best in july near the white house. public support for japan's prime

minister has fallen to a new low. network put his approval rating at 29%, the lowest since he took office in 2012. a series of scandals has hurt the japanese governments credibility. global news 24 hours a day, and on tick-tock powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. tom: this will be a lot of fun. we have done a lot of international relations. i want to do this chart. this is from the people at epoch investment partners. you know someone or you are studying for the cfa exam, this proves that actually people in the real world use this fancy bologna ratio. for those of you on radio, i will put out a whole dissertation on the three-year and five-year rule.

david pearl of epoch investment partners. frompriest, tim clark years ago did free cash flow. they own the analysis of it. it is such a good time to have you here with all the doom and gloom of the market. is free cash flow as strong as it ever has been? david: it is a great year. the chart you showed, the important part is technology makes companies more profitable. profit margin is going up. they use less assets to create a dollar of profit. it is a capital light world. they are now returning share buybacks and dividends. they are not using as much capex. om: i want you to explain allocating capital.

when you say allocating capital for a disaster like ge or a success like honeywell, what do you mean by allocating capital? david: first, you have to have free cash flow. examples inlot of the market with positive earnings and negative cash flow. it is not bad accounting. accounting is again. a company can grow very quickly if you are selling one dollar for $.80. microsoft's free cash flow is 20% to 25% higher per share then earnings. that is the way accounting works. cash creates value. that is how you pay salary, the rent, grow your business. capital allocation says after doing that, do i want to reinvest at a high return, or should i just give it back to my shareholders? it depends on if you have a high return on investment. big companies cannot all grow.

they should be returning capital. smaller companies should definitely be reinvesting. francine: when you look at the recent capital allocations, my question is broader and more general, do you look at earnings and cash flow or just what they say about the future? we are in a funny spot where there are policies, geopolitics, domestic policies that can encroach on capital investment. of thethis is the crux investing question at the moment. the economy in the u.s. and most of the rest of the world is getting better at the moment. earnings are very good. when we look at earnings, we will more at free cash flow then accounting earnings. will the macro policies put a stop to it? is ade of trade, which very different issue from everything that has happened until now is kind of a typical

republican policy in the u.s. and the reduction of legislation above and beyond tax cuts is just starting. we will see a lot of repatriation of foreign earnings in the u.s. we are seeing companies very profitable. is the market about to discount the end of this because of issues like trade, problems in european political situations, italy, china in general being the biggest cause of the u.s. deficit, back to trade? that is what we are way. -- weighing. the organic growth in the u.s. economy is accelerating. it is a great scenario from the bottom up. what do you put on it? what is your future value of that stream of earnings? the market has gotten very jittery. francine: what you that premium

should be? carl: not really sure. not my area of expertise. francine: if you look at investments, this goes back to investment look at what they have to be earning, what do they have to be earning? carl: i think companies are a little ahead of policymakers. in a world with multinational supply chains and sales, the world is more related. companies are doing the right thing to stand back and see how all of this settles down. it is a world where a president can make a difference. tom: here is the book. mr. pearl knows the book. this is the one volume short read on cash flow.

forget about all the others. read this thing cover to cover and reread it again. what is the message? david: if a company generates cash, something positive happens. even if they don't like your business, you get purchased by another company strategically to pay their bills, or private equity comes in. largeow do you respond to companies that cannot move the needle anymore? jpmorgan, can they move the needle? apple, can they move the needle? >> you reinvest to grow, acquire, and you return capital. share buybacks, dividends, and debt paybacks. capital, like bank of america. they generate more cash. penalties have to pay

. that is coming to investors. ine cash flow is coming up an environment with spreads going up slightly, loan volume. if you are a growing company, microsoft is investing a decent portion. the cloud is growing 100% year-over-year. they should reinvest in the cloud. they are gaining share. they are number two on amazon. they get rated upwards because the growth is accelerating. francine: are there parts of the market that you would stay away from? well, the people who do not benefit from a rising rate and growing economy are more defensive stocks. tontitative easing from 2012 2016, those were the best stocks without question. consumer staple stocks grow with population. when rates were artificially zero, everybody wanted dividend

stocks. that has changed since the election. we are in a growth the environment. people want more growth. we have judges every morning, which judge the best bloomberg surveillance charts. once again francine lacqua takes that trophy. the east german judge tipped it over. , you are at your desk, trying to get up to speed. you do that with g tv . ♪ you do that with g tv . ♪ trying to get up to speed.

♪ taylor: this is "bloomberg surveillance." i am taylor riggs. one of deutsche bank's biggest shareholders has its stake in the company two months after saying it would not. chinese aj has reduced its holding to about 8%. race $16 billion to deal of financing problems at home. it will be a big week for google. at the end of last week, the stock was valued at $380 million. that is one of the largest single parents to a public company executive in years. allies -- opecs and its allies has made it clear that they will not raise production targets anytime soon. if there's anything the u.s. can do to put pressure on the cartel, we asked. >> it is pretty limited now.

we think about the ability to physically increased supplies, you are constrained by pipe capacity and oil pressure capacity. the recent targets are 1.1 million barrel per day growth. it is difficult to get higher than that. requires avenue congressional approval and is typically in emergency situations. i would not call this an emergency. taylor: that is your bloomberg business flash. francine: thank you so much. money market traders in the u k may have capitulated -- u.k. may have capitulated at mark carney's surprising of a rate increase. some of them are not doing an about-face on their forecast. one of them keeping their forecast unchanged, and carl

weinberg is still with us. thank you for coming into the program. there is a 90% probability in the market that's mark carney would do an interest hike. he did an interview that he wants to reprice the markets. that has gone down to 50%. what happens if he does hike in may? do the markets think he is an unreliable boyfriend what's again? >> -- once again? >> probably. the interesting thing is that 90% probability was not really changing on the back of unexpected data. cpi, it dropped a little bit, but it stayed around 85%. i think he is trying to make sure markets are aware there is this two-way risk.

they are not sure what they are going to do. in mayk they will hike for what it is worth. there is now this two-way risk. francine: if they do hike in may, and mark carney went out of his way to point out that it is not a done deal, is there a communication problem at the bank of england? >> i think there is. there is a chance that mark has gotten ahead of themselves through the first quarter of this year thinking that may was baked in. either way he is and a bit of a bind. we thought it was going to be made. now it potentially will not be. if it is not, the unreliable boyfriend thing will come back to haunt him. there is this two-way risk. outcome,e most likely but it is less likely than it was after these comments. the post brexit vote

highs for the u.s. dollar, are you looking at cable or euro pound? >> we look at euro pound because we feel it is a better gauge of what the market things about brexit. a lot of people think about cable. brexitu think about finally occurring, the biggest change in this relationship will not be with the u.s., it will be with the european union. we look at eurosterling. itse is almost back to pre-brexit high. it did come back on the governor's comments. there is a little upside risk in the pound. tom: thank you very much. carl weinberg with us. two things quickly, you look at that and brexit, do you have a call on sterling?

>> we think sterling is going to get cheaper. we think the markets are overly optimistic. even the transition is not reassuring. we face existential rest. -- risk. francine: we are looking at charts. question me give you a . when you look at the u.k., what is priced in? do you see value? isl: i think the market overweighted on this rate hike. we never thought this rate hike was going to happen. we predict inflation to be at target in the summer and below target are the end of the year. retail sales in the first quarter are down, production is down, manufacturing is up, and wages are up in a way that is

consistent with inflation being low. we don't see the case for the rate hike. tohout this was a head fake get the market riled up by the bank. francine: thank you very much. carl weinberg of high frequency economics stays with us. to watch tom and i. you can see some of tom's pretty cool charts. you can also ask us questions. just go to the chat underneath the video screen. this is bloomberg. ♪ bloomberg. ♪

♪ tom: good morning. "bloomberg surveillance." tom keene in new york. carl weinberg of high frequency economics is with us. also with us is david pearl of epoch investment partners. we do this in honor of all epoch over the years who say religion is free cash flow. you know the chart. the dow going back 120 years. it is a classic chart. why do people doubt the religion

of free cash flow? it has proven from the lower left to the upper right. it works. yes.: it is the result of economic growth resulting in profit growth. profit is how you grow your business. return on investment and equity are the measures of how well you did taking your dollar of profit, which is the shareholders, and getting a high return. part of the religion is capital expenditures. are they different now because of technology? and carl weinberg's world, the technology is changing everything and economics. does technology change how you study capital expenditures? david: it means companies will be more profitable because it takes less dollars of profit for

capital expenditures. you can have the clout to your computing, outsourced to other countries. technology makes you more productive. there is no real measure to see how technology has increased productivity. less dollars in capital, moore gets returned as a percentage. tom: where can i make money right now? which sectors are most attractive? david: in this era with rising rates, going up after 30 years of going down, a lot of people don't see the big seachange, if this is the environment and the economy is going up, you want economically sensitive stocks. economically sensitive stocks are technology and industrials, consumer discretionary, and financials.

morgan stanley had its best quarter in history, and they are more time to the short rate, which is going up based on the fed dots. losen stanley used to money on money market funds for years ago, and now they make money. if the market goes up, people are wealthier, and it is great. francine: what do you do with the company such as amazon? amazon has been a darling for a long time. the president tweets about them and regulation. how do you deal with that? david: amazon is unusual because their free cash flow is rather muted. it is rather flat. they reinvest a lot of money. they probably lose money on every retail sale from their own inventory. they probably make money from third parties. they are not our kind of company. for're getting rewarded

revenue growth. they have hurt every other consumer discretionary retailer. it is hard to find a company that benefits from cymer spending that is just taking off now because of the tight job market. new people coming into the market have a propensity to spend. we like dollar general. half of their customers do not have the cards. they are not going on amazon. they just got jobs in general. the tax cuts have been hugely $75,000 or you make less. for lower income working families, it is a boom. >> how much of this is demographics? is there a cloud in the future of this chart because of the change in demographics? it is definitely a challenge because productivity is a function of growth in your labor force, which is going to

slow. the amazing thing about americans is we continue to borrow. borrowing is towards its peak. going down since before the financial crisis. tom: thank you very much. we are going to have to leave it there. we are going to continue a busy week in international relations. withashington team is busy a macron and merkel visit. stay with us. this is bloomberg. ♪ this wi-fi is fast.

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♪ alix: 3% watch. the 10-year yield nears 3%. is it something more significant for the fed and investors? nearly one third of s&p

companies report this week. ubs underwhelm spirit president macri has to washington, d.c., to meet with president trump to capitalize on their special relationship. david: talk about special, look at that view of new york. it is a beautiful spring day. welcome to bloomberg on this monday, april 23. alix: we missed you on friday. you were playing tennis for a few years. david: i missed you too. alix: it is a soft session so far. s&p futures are flat on the day. the stronger dollar story as u.s. 10-year yields inch forward to 3% is euro. there are weaker