francine: talktalk on trade. china says it will not -- tough talk on trade. china says it will not submit to talktalk. policymaker and overshoots. the tesla chief executive dismisses questions about cash .arnings ♪ francine: welcome to "bloomberg surveillance."

i am francine lacqua in london. this is what your markets are doing. there's a shift away from the outflow, away from fed and a little bit of mood on 10-year yields. we continue to focus on earnings. trying to figure out what steve forhin's trip to asia means -- the norwegian central bank maintaining its qa. the focus was on fomc. at-- the u.s. 10-year yield 2.97. we will speak to norman lamont. it is all about customs union. the euro-dollar, at the 1.20 level. up, we take a look and talk the outlook of the dollar.

our weekly brexit show, we discussed customs union question with lord lamont. we talk equities and earnings with james bevan. he joins us in the next hour to give us his take on trade. let's get straight to the bloomberg first word news. nejra: donald trump has hinted that three americans held in north korean labor camps may when they release. -- mae win their release. they have been held for years by the nation. trump tweeted as everybody is aware, the past administration have been asking for three hostages to be released. stay tuned. in washington, mike pompeo has been sworn in as u.s. secretary of state. he said america has "an unprecedented opportunity to change the course of history on the korean peninsula." he is replacing rex tillerson. donald trump repaid his lawyer

michael: for a hushed payment to stormy daniels, that is according to rudy giuliani contradicting previous statements by the president. that: -- that cohen funneled it through the law firm and trump repaid it. -- theresa may was outnumbered at a meeting with ministers unable to agree on either of the options she proposed. she may have a week to get a compromise are face a choice between leaving without a deal. germany has filed for a public offering in hong kong kicking off the process expected to raise 10 billion u.s. dollars. the ipo may confer a value of $100 billion.

the chinese smartphone maker said revenue surged 67.5% in 2017. firm attical consulting the heart of the facebook scandal is shutting down. came with analytic says it has filed to begin it -- cambridge analytic says it has filed to begin the solvency. it is being vilified for that are widely accepted in online advertising. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. francine: let's kick it off with trade tensions. china wants to come to threats. the comments came from a government official hours before talks begin with the delegation of trump administration officials including steve mnuchin.

tom mackenzie is in beijing covering the events. good morning to you. i know it has been a very long day. what has the u.s. -- what is the u.s. the legation trying to get out of this trip? tom: we know what their concerns are the we do not know the specifics of the demands. steve mnuchin is sitting down with his chinese counterparts in the government. he is going to be meeting with the chief economic advisor. the broad concerns are around things like technology transfer, intellectual the protection -- intellectual property trip -- those are some of the concerns -- exactly how they are going to adjust those, we do not know. we are hoping to find out more at the end of the talks.

the chinese talks have drawn a pretty strong line in the sand. saying they will not be bullied by these u.s. demands. there are no preconditions to these negotiations. we are not expecting any breakthroughs but we make it concessions -- we may get concessions. waiting for details on that. the talks wrap up at the end of tomorrow. francine: on the concessions, you mentioned that it is something they may have missed -- they may have promised. it is probably going to be articulation of the policy th had been announced already in terms of reducing tariffs on imports. producing the tariffs on imports on autos. also around some of the measures

including protecting intellectual property, so articulating that vision for the u.s. counterparts, but we do not know the details from the chinese side. it is possible they may make some announcements around these meetings to assuage some of the concerns of the u.s. we're unlikely to see concerns about china subsidizing its manufacturing sector. china has been pretty clear in saying it is going to stick to that blueprint. that is an area of the concern. deep concern. our -- are some de-escalation of the tensions. that is what would most likely be the most positive scenario.

francine: how does the trick story play into the markets? -- the trade story play into markets? joining us now is jane foley. thank you for joining us. jane, if you look atrade, what is the potential of this escalating it will summer and no one will back down? could it go wrong? jane: it could go wrong. the market has taken the view that it will summer. -- it will simmer. i think if we look at some of the corporate reports. we have seen a couple of those that suggest they are concerned. that could have an impact and already having an impact on investment. clearly, there is a risk here. the central view is they will somehow reach some concession.

francine: it is impossible to price, marilyn. marilyn: it seems like there's a lot of the negotiating tools going on. we don't know what is going to happen. police said it is not going to -- china any tariffs said it is not going to implement any tariffs. we are starting to see a little coming through from the data, the pmi's coming out of asia. you have seen negative sentiment in terms of exports. francine: jane, when we were at the world bank in d.c., chinese officials took issue with the fact that the currency was a target. if you look at renminbi, are the chinese manipulating it? jane: in april, the treasury named five or six countries on

their list. nobody has been accused but china along with japan and switzerland and germany are on this monetary list. this is very interesting. have trade talks between the eu. there is a possibility that the u.s. can try and pinpoint germany. that is very interesting. francine: this is peter navarro. always said he has a problem with the surplus of china and germany. he cannot target germany. jane: they have to target the eu as a whole. the problem is, germany. it to another political slant to this whole trade talk between the eu and u.s.

francine: marilyn, how shall we just ourselves? we positiond ourselves? is it risky question mark marilyn: -- is it risky? you have to position yourselves. if you do expect some negativity, you could -- there's very little to go on. the market is focused on the fomc last night, then it is on the trade negotiations today. francine: jane, what are we looking toward next week? when you look at earnings, there is a feeling that the markets once and know more about the outlook. is anything else we should worry about? jane: risk appetite. if you look at the dollar, will receive now, the weaker turn of the emerging markets are

indicative of a worsening for risk. environment is this where the market is paying more heat to the fed is -- paying more heed to the fed. another factor is the slower growth in europe as well. francine: thank you for staying with us. watson,ey and marilyn both stay with us. if you are a bloomberg customer, you can watch the show using tv . you can follow all of our charts and functions by using the id function. tesla shares sink after the analysts call veers off course. elon musk says some of the questions were boring. we will bring you the details.

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francine: economics, finance and politics, this is "bloomberg surveillance." let's focus on the fed and officials have left interest rates unchanged. without indicating any intention to veer from the heightening of monetary policy. here is how that went down with some of the key market watchers. >> the statement is loud and clear, mission accomplished. we have reached full employment, inflation has hit 2%, we are safe to connue moving with our rate increases.

let me set you up a little bit. inflation is going to run hot. >> if the fed moves higher, i expect june rate hike but i don't expect to were three or four. just i don't expect those go or three or -- i don't expect two or three or four. >> it is -- we are going to get to four rate hikes this year. >> is not a big report. the market reaction is very tepid. this is what the market expected, an upgrade to inflation, characterization. this metric just helps to hittingthat if you're at 2%, you can go a little higher. >> the economy seems to be on the track. pretty good growth. inflation coming up a little bit. they are going to watch it and they will keep on their schedule of raising, unless something

terrible happens. francine: how should investors be positioning ahead of the fed's next move? marilyn, what did we learn from the fed yesterday? they are steady as you go. marilyn: more confidence in the inflation target. they now ought to manage it around the symmetric target of 2%. they are aiming at 2% which means 2% is in the limit. you could expect it to run higher. inflation is already a target. you are expecting the fed -- you didn't get a lot of news yesterday. the fed is confident and where it is now. francine: jane, is this nonsense? -- does it make it

more difficult for the fed to do what it wants question mark jane: not really -- what it wants? jane: not really. they know they have to do something immediately at these not press conference meetings. in the environment we have, it is fair. they have to relieve some of the pressure off the markets. think that is not a bad thing. the meeting, in many ways, they are still in the same position. the market is debating whether there's going to be a total of three or four. francine: let me bring you over to my chart. you can see the pc deflator. you can see some the preferred gauge hit the target for the first time in a year. after the move of treasuries for the first time, that curve was not flattening. does it mean we nipped it in the

bud? >> we have seen a lot of flattening. the market has been pricing in inflation to rise. it had been pricing in the fed continuing to raise rates. at the back end of the curve, it is incredibly flat. when you think about the amount of issuance to the treasure markets, that must have an impact in terms of the middle. francine: what does it mean for dollar? marilyn: we have seen the dollar breaking higher recently across a lot of currencies. the dollar index has broken higher. we have been focusing on the been a the dollar has very good performing currency over the past three months. the dollar is looking positive now. if we are not good to see a break above percent on the 10 year, -- not going to see a

,reak above 10% in the 10 year you can make many excuses for that. , there was massive rotation back into the euro. the dollarrgue that has got a lot of catching up to do in terms of interest rate differentials. you got low inflation in the eurozone, australia. there is a lot of pressure on central banks. the fed is still hiking. there could be some catch up. the spread could pull the dollar higher. francine: the dots, we are ignoring them. stock -- we start pricing in the rate hikes. when you think the u.s. economy continues to grow at a very

robust pace, the labor market very tight. you look at the dots and you look at the market pricing in as well. -- pricing it in as well. they continue to price very steady pace of hikes. four,ave raised them to but there is a lot of the year left to go. we could see four hikes this year. francine: thank you both. they both stay with us. let's talk tesla. after blazing through another $1 billion last quarter, yesterday's earnings call starting just started off on a positive note. -- started off on a positive note. elon musk got sick of analysts boring questions which he said were not cool. >> we are going to go to youtube, sorry. these questions are so dry.

they are killing me. 5%i am talking about a 3% to . it is something we will solve. next. boring questions are not cool. if people are concerned about volatility, they should not by our stock. stock.our do not buy it if volatility is scary. do not ask questions that are boring. inncine: the stocks sank late trading. this get more from alex webb -- let's get more from alex webb. it is must listen. is this a problem of to medication from elon musk? is there a real problem of cash

burning? is he is under a huge amount of heat. they are burning a lot of cash. our colleagues in the u.s. did quite a story. they have gone through $1 billion in the most recent quarter. volkswagen says it is to drop $25 billion on cars. the competitive threat is mounting. investors are sharing a good amount of discontent. it was interesting, on the social media, a lot of bulls are saying is going to prove all the bears wrong. he kind of was until he went out on this tangent. >> we had this with richard branson 10 or 15 years ago. he is a thinking genius and more of an engineer. should he be forgiven? alex: the thing is, elon is an

engineer. he comes from a very different background. it did back the question, when he says i am sleeping on the production floor of the tesla plant, to what extent is that a benefit? is synonymous with tesla -- elon is synonymous with tesla. he appears in ironman films. when he has these slightly dodgy moments, they are his employer. they are the ones paying his bills. francine: how much time does he have? they said they are going to start generating cash in the second half of this year. they better do so. it will really be a question of when the competition comes with their cars. that will start happening next year.

francine: it blew my mind. this is the chinese smartphone maker. they are preparing for an ipo. you are allowed to have a share structure could you do the classical silicon valley thing. just structure. you can do the classical silicon valley structure. the first thing i suppose is the ceo says he wants to be one of the big chinese giants like alibaba and tencent. playing in the market will help investors and health relationships. francine: can it really take on apple? phone up nextut a to a vehicle, and then you put it next to a iphone and show it to someone not in the industry,

they may struggle to tell the difference. puts a lot of pressing pressure on apple. they hope to make some of that back. francine: alex, vicki so much. -- alex, thank you so much. remember, bloomberg users can interact with the charts. if you click on g tv , we have a chart. you can catch that on bloomberg tv and then you can catch up on key analysis. you can dazzle alex, maryland or jane. jane could we talk treasuries coming up. -- marilyn or jane. we talk treasuries coming up. this is bloomberg. ♪ mr. elliot, what's your wifi password?

wifi? wifi's ordinary. basic. do i look basic? nope! which is why i have xfinity xfi. it's super fast and you can control every device in the house. [ child offscreen ] hey! let's basement.

and thanks to these xfi pods, the signal reaches down here, too. so sophie, i have an xfi password, and it's "daditude". simple. easy. awesome. xfinity. the future of awesome. tom: welcome to our -- francine: welcome to our weekly brexit show. let's get straight to the bloomberg brexit bulletin. nejra: we started the week with

u.k. home secretary amber riley resigning over claim she misled parliament. she was a pro-european voice. the u.k. is proposing a new plan to kickstart stalled brexit on thend make process issue of the irish border. prime minister theresa may's team of negotiators has dropped in a new template for how the u.k. and e.u. should work together on britain's two favorite options for addressing the border. the u.k.'s house has sought to make it harder for the president the house of lords voted 335-244 in favor of an amendment to the european union withdrawal bill to give parliament a vote before theresa may can walk away from negotiations with the e.u.

without a deal. global news 24 hours a day, on air and on tictoc in twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am nejra cehic. francine: we are just getting some pmi figures. this is sources pmi at 52.8. attached below estimates but not too far. , this is fore pmi the month of april. you can see the pound, 1.3594. we have had a little bit of an odd data line. construction was bad and then it was all to do with the snow. how do you read the data? is the economy turning for the worst or is it ? -- blips? marilyn: this was not weather-related.

it is clear to see construction what have been weather-related, but that is a pretty small part of the economy. the fact that that was not hit by whether suggests there is something a little bit more structural, and that is a worry. we had growth in the first quarter. are looking at the next set of data to try and work out whether this is going to continue in q2. this is growth but weaker than the market expected. we are looking at a more sickly pace of growth. francine: i am looking at gilt. i am not sure they are doing that much. what does it take to move gilts? marilyn: first of all, when you look at the fundamentals, the bank of england, the bank of england and carney has been very careful to keep all their options open. given that interest rates are still at emergency levels, given that the economy is still

positive, pmi is still positive, gdp data was disappointing but inflation is well above the 2% target. i think if you see the bank of england moving later this year, that could have a significant impact on gilt. also if you start to see inflation stabilize at these levels, i think that will also have an impact. francine: speaking of the bank of england, it is just over a year until mark carney is due to stand down. speculation is mounting about who could take over. while philip hammond has shown willingness, a bloomberg survey indicates he may choose a candidate closer to home. it puts andrew bailey as the most likely contender, followed closely by the boe deputy governor. who would be the strongest candidate to navigate the challenges of brexit? marilyn watson and jane foley are still here.

i do not know if you want to take bets. how significant is this, compared to trying to understand how the boe communicates? mark carney talking down the market expectations of a rate hike, but what happens if he hikes? jane: the communication is all important and the guidance could be as important as the move itself. if they were to go in may, i think it might be a dovish hike. that would suggest they would be sitting on their hands for a long time. it is just more disappointing data. we are not seeing the sort of wage growth their models were predicting, and with the gdp as well, it will be more difficult. if they did hike, they would therefore give it a more dovish leaning. a couple months ago, i think the market was thinking maybe we

have all but one voting for an immediate rate hike. now, if they do hike, it will be more of a mix. francine: if they do, could it be a communication problem because the market repriced? not necessarily some of the currency traders repriced but market expectations repriced. marilyn: they are focusing on keeping all of their options open. they might be disappointed at seen so much of a repricing. it is very hard to put forward guidance on something when you have so much uncertainty around the data, the brexit negotiations. there are so many different things to take into account it is difficult for them to clearly signpost what they are going to do over the next three months. francine: we do not even know what the government wants in terms of customs union, in or out. how difficult is it to have economic models to forecast? .ane: really difficult the brexit negotiations will be very important.

want a. in knee you trade deal on the table by october -- and e.u. want the trade deal on the table by october. that is a short time to come out with a trade deal. if they do that, it might be a little bit more easy for the bank of england to have a free hand in policy is november. -- in november. if there are struggles with the brexit fund through the end of the year, it will be hard to hike in the face of that. marilyn: it would be difficult. there is not enough tangible news, and there are so many obstacles in the way, all political, ranging from northern ireland. october is really very close now. you are seeing that in the market and the currency, you saw that in cable falling again. coming to the crunch, and there are still -- so many unknowns.

most of the pressure will be on .he pound and will remain there i think we will continue to see volatility in the pound. francine: is there anything we should be looking out for, like lending or credit, that we do not spend much time on that would tell us a different story? jane: if you look at the bank of england's credit data, not the official data this week, but a month or so ago, it shows the risk appetite amongst lenders is dropping. lenders willing to lend is decreasing. that obviously will have an impact on consumers, and overall lending. what that means is if we have less investment in the u.k., and if you look at the bank of england investment survey, it is growing, but lower than it would be otherwise because of the political uncertainty. lower investment mean slower growth and also the potential for higher inflation.

that is not a particularly happy environment for the u.k. economy, but it means that even though we might get back growth data, the bank of england might still be more positioned to hike because of the inflation rate. francine: marilyn watson, and jane foley, stays with us. thety coming up, including u.k. prime minister fails to get her inner circle longboard. -- on board with her plan. can she take a deal to the negotiating table in brussels? why the u.k. chancellor is being forced to reconsider his position on the house of lords. this is bloomberg. ♪

to oure: welcome back weekly brexit show, live from our london headquarters. david davis is taking questions in parliament right now. mr. david davis talking about the custom union and also the irish border, saying solutions to the irish border cannot be based on a precedent. there he is. we will put it on social media for our radio listeners, good morning to you. a will get on to that in second. on the irish border question, a meeting of theresa may's inner yesterdayed in crisis

when the majority of ministers rejected her compromises on the e.u. customs union, as theresa may suffered another defeat in the house of lords, her peers backing an amendment to prevent a hard border. at theseblin looking recent and developments in london? >> i think it is fair to say that dublin is looking upon it with a fair degree of bafflement and bemusement. the reality is that both already more or less been rejected. there is a bit of bafflement about why the u.k. cabinet is tearing itself up over some proposal that has little chance of succeeding. all in all today, people are just puzzled and our china figure out what happens next. francine: what is the next big pressure point? dara: i think we are looking at

that next month. for a bit of background, there has been a lot of charisma for the government of ireland do not have a position in march. the government feels it did not have the credit for the concessions it made, so it is determined to get an agreement in june. they are saying it does not have to be a final agreement, but -- real, a real gush substantial progress. the prime minister was asked several times what he means by progress and he declined to say. it will be an impediment toward reaching an overall withdrawal in october. late june is another pressure point rushing toward this. francine: when are you expecting to have the details? can it be after june? can it be october? june, whatwe want in

ireland would like a significant progress. they have not defined that. at least the mention of the idea of rail alignment -- real alignment to avoid a hard borr . that wouldave the way for the overall agreement in october. what they are concerned about is if there is not enough progress in june and we moved to october and suddenly ireland gets squeezed out of the frame as the bigger picture issues come into play. the determination to get some kind of agreement on real alignment in june, the dup does not want to see that. that puts theresa may back on the defense. francine: let's bring in norman lamont, u.k. chancellor under john major. he has written a column in the daily mail about yesterday's

house of lords defeat. he says, it is surely the righte -- it has to not only dictate to the government of the comments, but even to thwart the clearly expressed decision of the public. lord lamont, thank you for joining us. you really take issue to the fact that the house of lords are slapping down what theresa may's proposals are? lord lamont: the house of lords is entitled to revise, to tidy up legislation. the amendments that have been passing have been way beyond anything that would be called revising or tidying up. several people who supported some of the amendments said the object was to with draw britain's notification of which are all from the e.u., i.e. to reject the referendum. i do not think they should be

entitled to do that. francine: you were pro-brexit. what surprised you since the referendum vote? its aims we still do not have a clear plan. it seems the remainders are remainders and the pro-brexit are still pre-brexit. surprisedt: what has me is the extent which the government has to negotiate with itself. the prime minister has got to get her solution to this. my own personal opinion is that her idea of the customs partnership is too complicated, but the smart border solution which the government has been toying with, is the right answer. .t is perfectly practical the irish government and e.u. are using this issue as a lever to extract concessions from the british government. i think mr. barnier was out of game yesterday or the day before

when he was saying the british should think about a border in the north sea between northern ireland and the rest of the u.k. there is no way any government in the u.k. can accept that. francine: what would be the solution with northern ireland, and why do we not have the details? lord lamont: i believe the smart border, the technology border, people talk about borders as though customs checks were carried out at the border. they are not carried out at the border. they are carried out in warehouses, when a plane leaves shanghai, in wales when goods arrive by air from ireland. they are not carried out at the border. francine: you still have to check your passport. lord lamont: that happens between members of the e.u. as well. happens between britain and france. peoplestoms checks for worrying about goods and lares ies are havinglorr

to do with drugs. people they are familiar with, and what the british government has proposed is to use technology, authorized traders schemes and some exemption for small businesses. this is perfectly practical and i think the e.u. and irish government are playing politics with this. the british government does not want a hard border. the irish government does not want hard border. it seems to be the e.u. who wants a hard border, that this is the external border of the e.u. francine: it is also about external pressures within the tory government because of opposition. you think there is a chance that brexit gets five? -- fudged? lord lamont: i think we will leave the e.u.. outside the e.u., we have not really left. that will be one point of view. francine: is that your view?

lord lamont: i would like to leave the customs union. whatever happens, even at the end of the transition, there will be further adjustments to britain's relationship with europe over the decades. francine: there is no fault line . you do not think there is a chance brexit will not happen or that it will be brexit on paper but nothing will change? lord lamont: no british man says never never, but i think brexit will happen. francine: do you think theresa may is the right person for the job? issue the right prime minister to guide the u.k.? lord lamont: she is the chairman of the board. i do not think she should be removed. she has got to impose a conclusion on this irish border question quickly. francine: can you talk about the divisions within the conservative party, how big are they? lord lamont: there are only a verymall number, somewhere between six d 10 people who

would actually be opposed to honoring the referendum. thoseot even sure all of would go so far as to vote against it. it depends what the paper is about and if it is confidence. francine: isn't it split on the customs union? side,amont: on the labor there are half a dozen people who will vote for brexit regardless as well. francine: is this within the customs union or without? lord lamont: i was answering your question in relation to actually stopping brexit. for the customs union, i think there is a border. it is a highly complex question to put our views on. there are probably a lot of agnostics who do not know or cannot decide. francine: what i'm trying to understand is whether you can differentiate brexit with the customs union. if you said people would not vote against brexit, but what they vote against something that

would take the u.k. out of the customs union? lord lamont: there is a large bloc of the european research members which support getting out of the customs union . that is probably the view of conservative party members. it is broadly the view of the conservative party. what these people do not have, and what the prime minister has is she has to judge what is negotiable. , and she mayculty be taking a different perspective. you talk about the politics, there are terrible politics about this in the irish government. the irish government has an election coming up, and that is partly what this is all about, who can bash britain hardest. francine: when you say it is up to the prime minister to judge what is negotiable, issued in a difficult negotiating position because of internal division? does the e.u. see that and take advantage? lord lamont: the you -- the e.u.

and irish government are using this as a lever. i really and is vulnerable -- ireland is on a roll to brexit if there is no agreement, so the irish government would prefer britain was in a customs union. they are using this as a lever to try to force britain into the customs union, which i do not think a majority of the governing party want. francine: would you get rid of the house of lords? lord lamont: you could carry it on behaving as it is. the justification for a nominated house is a difficult one to make. francine: is it the right forum for people to express their mines because you have the house because you minds have the house of lords? lord lamont: the house of lords should be tidying up, making sure legislation is consistent. what they propose with one particular amendment was really that both houses of parliament

should take charge of the negotiations if they have not been for filled by a certain per iod of time, but we have never had a treaty that has been negotiated by parliament. i doubt a treaty would be negotiated by parliament. it is absurd. approved by parliament. francine: this is unprecedented times. would you say that we should not anymore have a debate on what kind of brexit we get? lord lamont: you are bound. or decide stop it what kind of brexit you will get. that will go on. i think things will settle down , lot once the withdrawal bill which is having these birth pains in the house of lords, once that is through, i think we will be into a clearer space. francine: how are you about the timeline? it has been 23 months since the referendum vote and a year or more since we triggered article

50. as time against the u.k. and the government? lord lamont: time is obviously a problem, but i have always anticipated. negotiations until quite recently have gone better than i expected. i thought there would be break times and war cards. i would not regard that as the end of the world. i always thought this would be difficult negotiation and there would be drama and we would see things happening in markets. until recently, i thought markets for getting used to brexit but now they seem to be taking an interest. francine: are you surprised that you use seems to be quite collegiate and has a united front? lord lamont: yes and no. the british government has a lot of lines open to individual governments who want different views of what is happening. mr. barnier speaks for 27 countries, but can you really speak for 27 different

viewpoints? i do not think they are unanimous. yowi find some of the east ropean cpanies- countries have quite a lot of sympathy for britain. francine: are the markets looking more at the politics or the boe monetary policy and economic figures? lord lamont: i think they are looking largely at the monetary issues, because it was very noticeable. for a while, it looked as though the foreign exchange market soft brexit as something that was not -- saw brexit is something that was not terrible. the moment carney made his remarks about interest rates, the pound fell markedly and then fell further again after you had the first quarter gdp figures. i think the evidence is that really it is very close to ready developments in the economy. francine: lord lamont, thank you for joining us, former u.k. chancellor and member of the house of lords.

there is a new bloomberg.com. we have relaunched our website, so check it out. bloomberg "surveillance" continues. we will be talking markets, treasuries. the yield curve is no longer flattening since last night. what does that mean for fed policy and fomc? bevanl be joined by james , chief investment officer from ccla investment management. a little bit of a reversal when it comes to european equities. i think investors focusing on earnings going forward, and maybe a little bit of forecast for trade talks between the u.s. and china. this is bloomberg. ♪ retail.

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

every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. francine: tough talk on trade.

the u.s. delegation arrives in beijing. attitude toward inflation. our policymakers willing to target and overshoot -- willing to have an overshoot? --stions about masks cash good morning, everyone. this is bloomberg "surveillance." tom keene in new york. we are getting some euro area inflation. inflation not so perfect. if you look at the number for last month, it is slowing to 1.2%. economists estimated 1.3%. thissignificant if you are mario draghi. tom: some of this just trend, a data point here and there. francine: it is a data point, but you need to look at whether

this is a longer trend. if you look at core inflation at 0.7% as opposed to the 0.9 we were expecting. taylor: a warning from china before trade talks begin with the u.s. today. beijing will not submit to threats by the trump administration and will not accept any u.s. preconditions such as abandoning its manufacturing ambitions or narrowing the trade gap by $100 billion. a surprise revelation last night about president trump and stormy daniels. the president reimbursed lawyer 130 thousand dollars in hush money he paid daniels before the 2016 election. this comes from rudy giuliani, a member of president trump's legal team. it apparently contradicts president trump's recent statements. the federal reserve is signaling it will not be shifting to a faster pace of interest rate

hikes. policy makers made sure to assure ahore -- relaxed nature and mentioned this cement -- symmetric nature of their target, adding the fed will not act severely if the inflation is above its target. theresa may is facing a revolt on her brexit plans from her cabinet. pro-brexit ministers joined with conservative hardliners to demand a clean break from the e.u. customs union and rejected may's plea for a compromise solution. she could be forced to choose with staying in the customs union or leaving without a deal. global news 24 hours a day, on air and on tictoc in twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you so much. equities, bonds, currencies, commodities, a quiet day.

fed day yesterday, jobs day tomorrow. still not back to 24,000 on the dow futures. dollar strength. i will have a chart on oil and turkey in the moment. the vix, 15.65. dollar-lira, that is an ugly number, inflation really significant in turkey. francine: stocks in europe following, and -- following, -- and investors starting to switch their way -- there view away from the fed. this is why we go to tom mackenzie. gold advancing and the dollar giving back some of its recent gains. tom: this is a chart that needs explanation. it is brent crude, and the idea of the white line, this chart is

so cool. i will put it out on twitter. ined line is brent crude turkish lira. that divide over on the right side of the chart, as clear as i can make it, is the agony of higher petroleum prices in turkey. this goes back to mr. erdogan's 2003, and the devaluation of the turkish lira that makes oil extremely expensive in turkey. francine: i will talk about agony if you are a central banker expecting inflation and hoping for explain -- inflation that is not materializing as much as you were expecting. core inflation slowing to 0.7%. this is what my chart is looking at. this chart matters because the euro area inflation measures are stuck below, but not close to 2%.

that is something we need to keep an eye on for future ecb policy. china says it will not succumb to what it calls threats from the u.s. on trade. the comment came from a senior government official hours before talks began with the delegation of trump administration officials, including steve mnuchin, wilbur ross, larry kudlow, and peter navarro. tom mackenzie is in beijing covering the visit. what does the u.s. want and need from china? the treasury secretary said what he wanted to a were issues around the trade imbalance, around tech transfers and the market and that -- they will not be giving why in these twomounts days of meetings and will not be bullied by the u.s. there may be discussions around market access, potentially

discussions around increasing imports on the u.s. what we have been led to believe from both sides is not to expect major breakthroughs, although they are significant in potentially rebalancing this relationship and getting back on track. francine: tom, are the risks to the upside? if tensions flare up, if one of the advisors says something wrong to the chinese, how bad form is it if you are a chinese official? interestingro is because he of course -- navarro is interesting because he wrote the book "death by china." on the other side, steve mnuchin and kudlow seem to be more trade -- free trade favorites and -- so you have got a bit of division within this delegation. how that plays out will be interesting.

the etiquette is going to be important. the you may get from chinese side is another articulation of what they see our measures to appease the u.s. they say the chinese are very much in line with their longer-term plans of opening up the market and reducing tariffs on imports. they will do their best articulate that for their u.s. guests, and we may get more details in 24 to 48 hours. tom: with your experience in beijing, is this a meet and greet for the first time for secretary mnuchin and a fractured team -- a fractious team, i should say? is there any sense of getting one idea done, or could it be negative where they "come home empty-handed?" which is it? tom m.: it was interesting to hear from the china economist

saying the u.s. was demanding a lot from china, but their demands were rather vague and confusing. certainly, that is the line the chinese have been pushing as well. they want to get specifics from the u.s. when they went over to washington, they said give us a list of demands, give us a point person. now they are coming over with five or six for the chinese to work with. it will be a difficult relationship. they had the economic insecurity dialogue that was ended, so getting these conversations back on track, the best case scenario is that we have a dial down in tension and agreement for future talks. tom: we have high-level discussions from two presidents cup. presidents. people want to know what peter navarro will do in beijing? tour theo work --

forbidden city or get locked up? tom m.: we do not know exactly what sites they will be shown, maybe none at all. we have very few details from the state department and the u.s. there has been a lot of secrecy over the stalks. we know they will be dining with their counterparts on friday. they will be wrapping up the talks at the end of friday, beijing time. wilbur ross warning he could end up cutting the talks short. navarro, let's see if he gets the red carpet treatment. they will likely be treating him with kid gloves. francine: very nice reporting, tom mackenzie. i want to save you from the equal -- awkwardness of tom keene's questions. i always enjoy our economic conversations with esther navarro -- mr. navarro.

joining us is james bevan. thank you for showing up. peter were to advise navarro today as he shows up to beijing, what would you advise him? tone down the rhetoric or go for it? james: i would focus on the key issue some of the made in china 2020 five-story. it is not so much the opening of opportunities. with the do preservation of u.s. intellectual property rights in technology. china is importing 60% of the world's chips. it produces 16% and has a big gap to fill. u.s. -- the u.s. does not want to give their technology up. tom: when you look at china and export-import dynamics, they are market to list in many ways -- mercantilist in many ways. how mercantile is this

delegation to china? tom m.: this is a very serious delegation of all the heavy hitters. that was a clear purpose, preserve the u.s. technology advantage and try and cut about $100 billion off the trade deficit the u.s. currently has and finds intolerable. tom: james bevan with us, and we will continue. we have jobs day tomorrow. we have an incredible treat for you in our next hour, on china. and the people and fabric of china, elizabeth economy will join us. she is out with a fabulous new book on the changed china that she observes. stay with us worldwide. this is bloomberg. ♪

taylor: i am taylor riggs. bayer has cut its forecast for the year and blames foreign exchange rates. at the same time, they repeated they expect to close their $66 billion purchase of monsanto by the end of the quarter. the deal will transform the company into the biggest producer of seeds. france is ready to pay up to a billion dollars to resolve two u.s. investigations. an agreement between the bank and justice department could be announced this week. the probes have to do with the raking of benchmark interest rates and allegations of bribery in libya. the ceo of volkswagen is promising a change in the corporate culture. he pledged to step up integrity and compliance efforts as part of the german carmaker's biggest

overhaul since the diesel scandal in mission -- diesel in emissions scandal emerged. that is your bloomberg business flash. francine: we just got breaking news in the last 14 minutes or so, euro area inflation unexpectedly weekend for the month of april. it is a setback for mario draghi as they edged toward paring back some of the unconventional stimulus. let's get back to james bevan. this chart matters and i showed it at the top of the hour. i will put it on social media. how much of a headache is this for mario draghi? he was hoping inflation would pick up and it is not. tom m.: this is a really significant issue, and there are two clear drivers over which you have no control. the first is the export of inflation or deflation from northern asia.

the other side of course is strength in the euro. one looks at adidas' results for the example. the strength of the euro makes it difficult for companies to make progress and by extension, inflation is low. francine: we are following the european commissioner in charge of monetary different -- affairs , he says inflation should increase slowly in europe. about, he did a huge mistake about 10 years ago because the -- he had to reverse an interest rate hike. how does the market enterprise withdrawing stimulus, or how does the ecb have to communicate that without suggesting an interest rate hike? would that be badly taken? james: the ecb has a material challenge. esther draghi is a master of communication with the market -- mr. draghi is a master of

communication with the market so if anyone can do it, he can. in scale of the challenge terms of the absence of inflation and the stresses within the european system as evidenced by the imbalances within the target to cash interchange, is very real. tom: you are perfect to talk about this. here is the money question that links into fed day and job stay. europe has got its own calculus and clearly has some form of -- is thatnd being discrete to europe? james: i think europe's problems relate to a fundamental lack of personal integration at an economic level, which means that parts of europe remain deeply uncompetitive. they have suffered extreme unit wage cost inflation on an internal basis because they have no mechanism to adjust the policy agenda so we have one

interest rate that does not apply to all european economies. we cannot have a shift in the relative exchange rate. america in contrast has always managed to send more money around the states. about four times as much money can transfer in the states as opposed to europe because of the e.u. always speakset about the ability to diffuse the economics in the united states versus the borders of europe. europe, a beion in lesser inflation in the united kingdom, forgetting about pounds sterling. will that be the tone for the fed and for the administration come september or december? james: i am not of the camp that the fed will only tighten to around 2.2 5%, 50 basis points above where we are today. that is certainly predicated on the perspective that we will see

a relative weakening of economic growth compared with current expectations, and a down drop in inflation expectations. i do not worry about inflation and i think the fed does not worry so much. you will notice yesterday they deliberately dropped the phrase "monitoring the situation." that is a big change. tom: james bevan, thank you so much. weaker inflation in europe. an important conversation. i guess outgoing is the right phrase, william dudley, on the public service at the new york fed. our editor in chief emeritus matthew winkler in combination with dust conversation with william dudley at the 12:00 hour. this is bloomberg. ♪

francine: this "surveillance." tom and francine from london and new york. xiaomi has filed for an initial public offering. this is the chinese phone maker. the ipo which could be the largest since 2014, makes for a value of $100 billion on the eight-year-old company. the bloomberg news asia tech reporter. can they really sell to the rest of the world? >> they are already selling to the rest of the world, just not in the u.s. and not in the u.k.,

but they are definitely all over india, indonesia, southeast asia, and different parts of europe. francine: i have a phone here which i grabbed for my associate producer. if you look at the iphone and xiaomi, xiaomi is much cheaper than the iphone and has some great features. is there some concern that people are listening in? are people concerned because it is chinese made? shelly: that is definitely the concern as they try to expand internationally. while they have been doing really well in china and india, the question is, will people still want these kinds of phones when you get to a market where people are apple loyalists like the u.s.? tom: i look at the market share from idc and i do not get it they are a third or fourth mover at best. we know the studies that apple has whatever market share it has now is the second player with

all of the profits of the industry. do we have any clue to this ipo of the true profitability of this company, or is it a mystery? shelly: the big surprise in the i've. -- ipo filing is that xiaomi does make profit. it is just not coming exactly where we expected to come from. even though they make phones that are value funds. they only make 3% to 5% profit margin, they are not losing money but not making the kind of profits as apple. what they are making money on is what happens once you get those phones into the hands of consumers, what they are looking at in terms of advertising and services like video streaming and cloud services, and those kind of things they will charge on. they make a 60% profit margin. it is a smaller part of their business, but that is what they are counting on to make a more profitable company.

tom: do people upgrade from this value phone to a fancier phone, or is the idea that it is a third world phone they stay with forever? shelly: i think it depends on the market. you are absolutely correct in terms of china, their hometown market where they had so much growth. they were at one point the number one seller in china because people were buying phones for the first time. that is not the case today. people are upgrading and want a nicer phone. francine: shelley, thank you so much. shelly banjo and james bevan stays with us. coming up, we speak to the chief executive of marathon petroleum. ♪

francine: this is bloomberg "surveillance." tom and francine from london and new york. let's talk tesla.

after blazing through another billion dollars of cash, yesterday's earnings call started off on an optimistic result. promised they would generate cash in the third and fourth quarters, but then he got sick of analysts'"boring questions." he said it was just not cool. >> we are going to go to youtube . i am sorry, these questions are so dry they are killing me. solvesomething that will -- it is not like it is -- do not make a case out of it. next. boring questions are not cool. if people are concerned about volatility, they should not by our stock. -- buy our stock. >> are you guys going to let core speed to the market with a

supercharger? >> ask questions that are not boring. francine: the stock sank in late musk's after mosque -- -- james bevan is still with us. your first thought is, is the chief executive not answering because he does not know the answers or is he focused on other stuff? should we give him a break? james: it is worrying either way , a company that is burning cash, has not turned the corner and has not been able to ramp up production of the three series. it has not delivered on the back of technology like it anticipated. assumptionwidespread that he will be coming back to the market. not a great line to take with colleagues that will be raising money. francine: we had it from richard

branson years ago. james: you have to bear in mind that a lot of these executives are not suited to a public company position, where you have to have an accountability and answer their questions, whether you like it or not. francine: should elon musk not be on these calls? , ies: he is so powerful would challenge investors to tell me he was even on the board because he is a dominant figure and key position taker. there a dominhis not easy to pass away. tom: as a member of the cfa institute, i want to thank cfa institute for their support of bloomberg surveillance. the most important guy this morning is a guy name todd marron, the general counsel for tesla. how can adam jonas at morgan stanley or ryan brinkman at jpmorgan follow this company?

don't their general councils or head of research say, we have to suspend coverage? james: i think it is difficult, but we are always talking about analysts who have to project far further forward in valuing a company than the available financial information the company will provide. i will say suspension is not necessary. we have clarity on what the analysts inc. will happen, based on evidence. tom: as you said just the francine, a conference call is where you ask some tough questions. every single beleaguered ceo knows that. why does tesla have a different robots? why does is just -- tesla have a different rulebook? james: the way that you and i look at it -- tom: what does the general counsel do when the force of the

company walks off the call? james: in terms of what was adequate, there was disclosure in terms of the line items that tesla are required by law to expire -- explained to analysts. i agree the call was a travesty and rude to the people on the call, but i do not believe tesla has done enough to warrant striking off the list of companies to be covered. francine: i actually drove a model x and it blew my mind. i am not saying it is a good thing or bad thing, but people are still interested in these. why are they interested in elon musk? james: he is an extraordinary character with great charisma and entrepreneurial flair. the problems he faces is that every carmaker in the world has an aspiration for electric vehicles. tom: there is this woman who sits near me at work studying for cfa, and she has 140 pages

of cfa ethics sitting on her desk gathering dust because she refuses to study ethics. in there is a general counsel who says, we have got to suspend coverage. let's wander to the first word news with taylor riggs. the white house appears to be changing its story on stormy daniels. president trump reimbursed his attorney for $130,000 in hush money paid to daniels before the 2016 election. this comes from former new york mayor rudy giuliani, a recent addition to the white house legal team. last month, the president said he did not know about the payment to daniels. president trump says stay tuned for news on three americans held by north korea, and said they he is working on a possible summit with ki jg-un this

month or next. stores have quit selling two chinese made cell phones. they pose a risk -- security .isk to military personnel they cannot specify the technical aspect of the threat. new economic figures are a setback for ecb policymakers. enedation unexpectedly weakane last month. -- muddies the debate of whether the ecb should pare back financial stimulus. global news 24 hours a day, on air and on tictoc in twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you so much. there is an ancient tradition on wall street, particularly out of football crazy london, soccer crazy london, that you do world cup leases.

most are garbage. this one is not. hsbc put together a terrific report that sums together these nations, their economics, finance, and happiness. it harkens back to the economics of happiness. james pomeroy is with us. this is a joke except your report is hugely valuable as well. let me cut to the chase. denmark wins the trophy. why? james: if you are doing any kind of mixed world cup, you need a company -- country that is good among a load of economic variables. we have taken indicators that have value and one you can get for all of the ranges of the countries in the world cup. panama do not have the most diverse economic data. where we are in terms of imbalances.

if you are well to those variables, you will do well. , these, sweden, peru countries were not showing many risks. basis, sometimes on an hourly basis i am letting jon ferro no italy is not in the world cup and neither is the united states of america. for thesen your study two lousy football nations? james: some countries did really fail to qualify. cases, maybe not less glamorous circumstances, but they are very important economies and some of the greatest economies in the world do not have great football pedigree. fantastic football pedigree but they have let themselves down. tom: it was genoa. francine: i am wearing italian green to support the football

team that really were quite rubbish for the first time in 30 years. if you look at the linkage, if you win a world cup, how much does it add to gdp? it gives the country a little boost, people are excited. james: it is interesting is when you run through countries that have had football success or olympic success, you saw a big pickup in consumer confidence. it was falling a little bit before the 2014 world cup, but draw a line to that defeat, it goes from there. i am not saying it is correlated. domestic success is sort of combined together and listening to people sentiment could probably help the economy over the medium term as well. francine: a new model for james bevan. do you follow football? james: not really. interested in football

clubs. in aggregate, they provide little return for their investors. francine: you filter it through economic gdp. james: football is a popular sport, and a lot of countries are going to russia to watch this. for some countries, their football success on the pitch does not matter. this world cup will be watched by billions of people around the world, so if you can tap into that, it is an enormous commercial event as well as a sporting one. tom: james pomeroy on italy. will bening, jon ferro with you later on bloomberg radio. we have an important announcement. congratulations to john mickelthwait in spiriting a complete, total redo of our digital product.

i am genuinely excited about this hugely readable -- jared sandberg and shout out -- i love it, it is gorgeous. bloomberg.com, brand-new. this is bloomberg. ♪

francine: bloomberg "surveillance," tom and francine from london and new york. the u.k. prime minister facing a crisis after pre-brexit ministers rejected her proposal for what a future partnership with e.u. would look like. she was outnumbered at a meeting yesterday, with ministers unable to agree on either customs option on the table. our brexit editor is here.

game 7 is also here. -- james bevan is also here. when you look at the two biggest issues, which is more difficult? emma: they are inextricably linked. the reason the customs proposal is so important, one of the big reasons is that the uk's external border over the e.u. will run through the island and that is why it is so important to get it right. ireland and the e.u. say there cannot be basically any border between ireland and northern ireland. essentially this could be a dealbreaker. francine: when do we know? we had norman lamont a little bit earlier and we were trying to figure out exactly, this is kind of crazy. 23 months since the brexit vote and we do not know the government's position on the customs union. are they giving themselves internally a deadline? emma: what you were hearing last

night was government officials saying they have days to figure out a compromise. the leadership must not be in doubt, and they definitely have to get something done before next weekend. david davis was in parliament now and says this is too important to fix artificial deadlines for. this is the same man who by october wants to have a very detailed outline of what the future trading relationship is going to be. that is something the e.u. says will not happen, but davis was saying they could have a trade deal ready to sign in march 2019. francine: do you think it will go very quickly if they left it to the 11th hour and it falls into place? emma: one of the options is that is extended until the last minute, that the irish border issue will not be solved. they will find some sort of

compromise wording which allows the u.k. to leave without knowing very well what the border will look like, 2021. global audience and those in the u.s. you have an understanding of senate, house of representatives dynamics, this has been lords, towards, lords -- lords, lords, lords. when does the house of commons weigh in on border issues in ireland? emma: there is a key amendment to a trade bill. we still do not have a date for when that will be debated in the house of commons. that is really important because 10 conservative rebels, pro-e.u. rebels have put their name to it and that is enough to defeat may. they say the u.k. should remain in the customs union so the short answer is we do not have an answer on that one. the lords, the 10 defeat against theresa may is important but

that legislation goes back to the commons. and is an unelected house we will have to see how many amendments remain when it goes back. francine: what do you make of this? pound traders were kind of looking through some of the political noise but they seem to be latching back on. james: we have a difficult economic position. all of those naysayers can get back where they came from, we will be fine. now we look at the numbers and it is clear britain has a big challenge and will not disappear anytime soon, and the clock is ticking. i am very nervous. francine: james bevan, thank you very much, and m a ross thomas. ross-thomas.emma can see ourers charts.

have a really cool one on treasury, a flattening yield curve that is not flattening so much. it is u.s. versus london. vote by clicking on it. this is bloomberg. ♪

taylor: this is bloomberg "surveillance." let's get the bloomberg business flash. elon musk got upset on calls with analysts discussing tesla's latest earnings, and the stock fell. he predicted and end to their cash burning days after they blazed through another $1 billion last quarter. he called the questions "boring." amazon wants to tap into the $30 billion a year expense on pet food. they launched a brand, starting out as a private label and will expand to other pet supplies. it is available to amazon prime subscribers only. the ceo of adidas says the company does not support kanye west's controversial remarks suggesting slavery is a choice. he is a designer, that the ceo told bloomberg adidas has not

discussed him. >> i saw the comment as you have seen it. i have not had any conversation with kanye in the last 24 hours. it is clear to us that we are a sporting company and want to change people's lives through sports and we will have conversations. i want to focus on the core that the company is about, bringing the best sporting good products in the world. taylor: adidas has run into currency headwinds. first-quarter sales rose just 1.2%. that is your bloomberg business flash. tom: thank you so much. it appears tangential, but it never is when a country is the size of turkey. there is a devaluation in process. with the what -- harvey with a wonderful istanbul const -- is this

evaluation of turkey? what is the valuation of the turkish lira to the dollar, what does it mean for the average person in turkey? constantine: prices are just getting more expensive. inflation accelerated more than analysts expected, so it is running almost at 11% and holding above double digits for nine months it was the valuation slump and the depreciation of the currency that we have seen over the past year is filtering into prices. analysts are worried. people on the street are making life much more expensive, but analysts are worried monetary policy is just not appropriately tight to contain the price growth. tom: we met at the imf. francine and i spoke at the meetings with the deputy governor, the financial guy for

mr. erdogan. is mr. erdogan engaged in this valuation? will the institutions of turkey deal with it, or are we not at that point? constantine: it is up to the central bank. its mandate is to control prices , so we saw it act last week -- sorry, last month. it raised interest rates by 75 basis points and speculation is going they may have to raise again when they meet in june. francine: what does that mean? first of all, how independent is the central bank? do we only find out if they go against the will of everyone question -- eog there is always speculation that central bank is coming under political pressure, and analysts criticize policymakers for being behind the curve. as we have seen, at the md of

the day, the central bank does act and raise rates. unfortunately, investors believe that is too little and too late to put these consumer prices in check. francine: thank you so much, our bloomberg istanbul based reporter. james bevan is here with his final thoughts. when you look at fed normalization policy and the ifrging markets, communication stays as it is and it is accepted by the markets there should not be any kind of big swings. james: absolutely right. as rates tighten in the global context, i think we are not wearing nearly -- worrying nearly enough about economies borrowing extensively, have inflated house prices, so i am nervous about australia, canada, sweden, economies that have played hard and fast, and i am

worried their indebtedness will come home to roost. tom: james bevan, greatly appreciate your comments. coming up in our next hour, really looking forward to giving you a voice on china with decades of perspective. her original book, "the river runs black" is one of the true classics on china. elizabeth economy is joining us, as secretary mnuchin meets for dinner with the trade authorities of china. stay with us worldwide, this is bloomberg. ♪ retail.

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across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. we use our phones the same way these days. so why do we pay to have a phone connected when we're already paying for internet? shouldn't it all just be one thing? that's why xfinity mobile comes with your internet. you can get up to 5 lines of talk and text included at no extra cost. so all you pay for is data. choose by the gig or unlimited. and see how you could save $400 or more a year. xfinity mobile. it's a new kind of network designed to save you money. click, call, or visit an xfinity store today. ♪ tom: this morning between that

day, jobs day, can robust american economic growth be sustained? can wage growth be great again amidst rising inflation? people", a few checks were written, rudy giuliana drops a bombshell. well or can straight arrow at triage?erform secretary mnuchin, landing together, in this hour, elizabeth economy, on president she jinping and the divide between lawrence kudlow and peter navarro. this is "bloomberg surveillance," i'm tom keene. francine lacqua in london. francine, i look at the trip to china, i have never seen it. this is not henry paulson going over there to help his president. i would love to be a

i would love to be a fly on the wall at that meeting. i don't know whether you speak differently to the chinese but i wonder whether the trump administration will listen to that brief. when i'm looking at in europe, this is significant for a global audience, unexpected inflation slowdown. what that means for ecb policy going forward. tom: totally agree. with what we have seen for capital in the united kingdom, good morning canada. you are focused in winnipeg, forget about that. be focused, canada on first word news. a warning from china before trade talks begin with the u.s. today. beijing says it will not submit to threats from the trump administration. a chinese official says it will not accept u.s. preconditions such as abandoning manufacturing omissions or narrowing trade gaps by $100 billion. a surprise revelation last night about president trump and stormy

daniels. the president reimbursed michael coed $130,000 in hush money that he paid daniels before the 2016 election. aat comes from rudy giuliani, member of the legal team who spoke to fox's. and apparently contradicts president trump. it federal reserve signaling won't be shifting to a faster pace of interest rate hikes. toicymakers made it sure convey a relaxed attitude to inflation rising above 2%. they mentioned the symmetric nature of targets in a statement that emphasized the fed won't react severely if inflation is about target. minister theresa may is facing a revolt on minisa may is facing a revolt on her exit plans from her own cabinet. at a meeting of the inner cabinet, pre-brexit ministers joined with conservative hardliners to demand a

clean break from the eu customs union's. plea for aed may's compromise. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. francine, tom. tom: quick data check, much to talk about. equities, bonds, securities, commodities, futures left between jobs day and fed day. dollar stronger, oil with a bid. turkish lira front and center. 420 and we break through five on euro-lira as well. good morning canada. we quote, dollar-canada, we don't quote the forest dollar. francine: we are pros. pitstops in it europe. investors beginning to switch attention away from the fed back to earnings, to the outlook for

global trade. i know they will be focusing on what steve mnuchin gets accomplished or not in china. dollar giving back in's, looking at euro. euro climbing as european inflation weakens in april. tom: the gerbil is working on the bloomberg. let's bring up the chart. oil and turkish lira, oil-based and dollars worldwide. thanks to our reporter from istanbul in the last hour, the white line is brent crude like global oil in dollars, when you have a devaluation oil gets expensive. the red line is up, up, up, ugly. oil, 92% of oil imported in turkey. that is huge, and ugly chart for istanbul, ankara and the rest of turkey. francine: important, it is not ugly. it looks quite ready. push that on social

media, or are radio listeners, it is missing the target. this is why this chart matters. euro area inflation unexpectedly weakens in april. this is a setback for the european central bank, policymakers, this is a crucial time when they are debating when they might be able to wind down the bond buying program. back to the top story, the trade tensions. china won't succumb to threats from the u.s. on trade. seniors from a government official came hours before talks begin with a delegation of trump administration officials including steve mnuchin and commerce secretary wilbur ross, also larry kudlow and peter navarro. our china correspondent is in beijing covering the visit. from the d.c. angle looking at what the trump administration looks to get from them. first of all, how will the u.s. administration receive -- be received in china? received withe

the courtesy you would expect from the chinese. there currently expected to be meeting with chinese counterparts in the government villas in the west of the city and then they will dine with their counterparts. as you said in the lead up to this meeting we have heard from officials, and the state media saying, trumpeting a hard-line ahead of the talks in the chinese drawing a line in the sand around two specific areas. they are concerned the u.s. will reduced support for things like semiconductors and robotic, ai, they say they will not reduce that. their concern that the u.s. delegation demand they reduce surplus they have with the u.s. by 100 billion u.s. dollars. the chinese will not do that either. a hard-line leading up what you make it moves around market access and increasing imports to china. francine: kevin, what does the u.s. administration want? tom was talking about the wins

they could get, bringing forward promises from the past. would that be enough for the trump administration? kevin: no. they want to reopen investment opportunities for united states investors in parts of china closed for some time. commodities,ing, we reported on this for quite some time -- intellectual property and backdoor deals, especially as another trade talk, nearing its completion, thea, a lot of folks feel chinese take it manage of the u.s. and other trade development deal such as nafta. talk about national security. we're just around the corner from the talks between president trump and north korean tatar kim jong-un and the president has said consistently, in public -- north korean dictator kim jong-un and the president has said the chinese have a critical role to play. he will play the trade card on

tariffont, the chilly theiffs to make sure chinese are doing their part on the korean peninsula. tom: what is the cultural way the china -- that china delays? how do they do that in these meetings? --in: >> they will be articulate policies they have laid out. what francine alluded to, they announced policies but do not give time frames, details. it gets dragged on and dragged on. the financial sector is a case in point. the speed to investment bankers, whether from jpmorgan or morgan stanley or ubs, they say they are pleased by the announcements around increasing ownership, we have heard ubs put in a license application to increase ownership by 51%.

we still waiting for the nuts and bolts around the details. forgetting more in terms of financial sectors, but in terms of the auto sector, telecom, other parts of the economy that china has wedged to open, they make promises but they went to waiting for details and time frames and they are lacking. tom: thank you so much. right now, time stop for washington last night. 9:00, 8:50 p.m., rudy giuliani, attorney for the president, here he is with sean hannity. only possible violation there would be, was it a campaign-finance violations? which would usually result in a comingot storm troopers in and breaking down his apartment. that was money paid by his lawyer -- the way i would do, funds, doesn't matter, --

the president reimbursed. tom: there is comments from rudy giuliani, viral last night. we are viral with kevin cirilli and continue on this domestic scene. newshis a planned bombshell for mr. giuliani or did this come out and chitchat with mr. hannity? kevin: the white house says it was not planned, they were not aware of the questions from sean hannity. my sources say the former new york city mayor knew what he was doing. that is where we are at. emmettere is a guy named who is darkening the door. he is not picked up the curtains at 1600 pennsylvania avenue. what does and its blood do this morning to get a hold of this process for his client? it floodedes anemm due for his client? kevin: this would be part of some type of plan. i've reported on this for some time, every morning.

this is the problem and the headache that this stormy daniels story poses for the president and his legal team. it would lead to some type of other legal exhibition. back-and-forth, perceived as gossip but when you look at tabloids, the national enirer forxample, there is speculation that folks in prident trp's political orbit are trying to forecast the type of back and forth that michael cohen, a longtime confident to private citizen donald trump needs to do. flood will walk in with a staff of five. i do not get that sense. will he be lonely at the white house on day one or is he actually going to have the attention of his client? kevin: i think he will have the

attention of his client but at the end of the day the question becomes -- does president trump listen to him? does he listen to the folks giving him legal advice to navigate this? i have to tie this back to policy. this is why this matters for our audience -- we did not knowing james comey, a couple weeks before election day was going to put out a letter, and arguably put in an october surprise for lack of a better term, for the election. we don't know what robert mueller's results will be or what they will say. that could be immobilizing force for democrats or for republicans heading into the midterm elections. largelly could be a reason that mobilizes, the base of either party and that is from a policy standpoint, implications for midterm elections and swinging of the pendulum in november. tom: thank you so much. trip to china's

and these events overnight in washington. outgoing, new york fed president, william dudley in conversation with our editor-in-chief, listen for that at the 12:00 hour. stay with us. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance," let's get the bloomberg business flash. taylor: cutting forecast for the year, the german drugmaker blames foreign exchange rates. expecting to close $66 billion purchase by the end of the quarter, transforming the company. ready to pay up to $1 billion to

resolve u.s. investigations. according to people familiar, agreements between the bank and the justice department could be announced this week. the probes have to do with the rigging of benchmark interest rates and allegations of bribery in libya. the ceo of volkswagen promising changes in the corporate culture. pledging to step up integrity and compliance efforts. part of the german carmaker's biggest overall since the diesel emissions scandal emerged in 2015. that is your bloomberg business flash. tom: taylor, thank you. a lot to talk about here. sandwiched tween fed day and job day. the equation, that means stephen stanley. thrilled you are with us. what will you look at at 8:30 a.m. tomorrow? stephen co the most important thing --

stephen: the unemployment rate might fall below 4%. we will hit 4% this time, as the year progresses. tom: you are an expert at parsing economic growth, you are brilliantly cautious, other times you flipped, can you go with trump, make america great again, sustain 3% gdp? stephen: i'm not sure we will be able to sustain that long-term. maybe we can get higher from what we have seen in this recovery -- 3% going forward is going to be tough to sustain as long as productivity growth is as low as it has been. is the fed it right in looking at inflation the way they did yesterday/ they are pretty cool? is this the right attitude? 2%phen: we have been below on the inflation target for a number of years.

if we go to 2.1% they will not panic. as it gets about 2%, where do they think the trend is headed? 1%, 2.2%, they think it will stabilize, that is fine. on the way to 2.5%, possibly 3%, that becomes a problem. francine: brady c treasuries moving on the back? the flattening yield curve, not flattening anymore. is this something new? stephen: they couple of things key for the treasury market and yield curve going forward. linets are pricing fed in for 2018. they don't have much priced in beyond that. the people become more convinced the fed will keep going into next year -- the other thing is inflation. the market has a benign view of inflation. looking for inflation to hit. 2% and stick if it does. -- thatebrate beyond 2%

is something the market will have to take into consideration. tom: you will continue with us, much to talk about, stability of the american economy. on technology, look at bloomberg lookeak, the conversation, for that at 8:00. don't forget our jobs coverage tomorrow, go beneath the headline data at 8:30 a.m. this is bloomberg. ♪

♪

we're going to go to youtube. sorry. these questions are so dry. you're killing me. chiefne: that was tesla's executive, berating analysts for boring questions. after that colorful language, shares fell. alex joins us. wow. -- he don't know, this is boring, it did not go down well to the people who are meant to give him money. >> there was a lot of pessimism going into these earnings. there broadly in line with expectations. investors are losing money. the stock had not taken a pounding but the moment he says, he goes on a tangent about these bizarre comments, that is one

stock fell off a cliff. an investment in tesla is an investment in elon musk. people might have inferred from that that he's does not -- that he does not have command of what is going on. francine: does he? >> the buck stops at him. it doesn't increasingly seem, whether he is able to keep everything going the direction it needs to be. tom: brilliantly said. this is what the actual bloomberg feed looks like here in the bloomberg surveillance. tesla reiterated, sell at goldman, likely missed targets, tesla, pressure shares, ignore the noise, bayard goes the other way, tesla likely to fall after truly bizarre. that is from jpmorgan. tesla investors say odd earnings -- thisould confidence

guy, frankly everyone on your beat, feel like they are playing from a separate playbook? what should wall street do to inform mr. elon musk, he has to play by the will look? -- by the rulebook? >> i'm convinced sometime this year he will come to the market for more money. my assumption is that would be to equity markets rather than credit. they should not reward him. they should not be giving them money to do this stuff. that is my perception. things, i could not build a car but there are so many things they could have done differently. look at the magnet in canada. it talks companies through how to build production. why aren't they using them? when apple was thinking of building a car -- there are so many missteps which could have been fixed. tom: too short a conversation. we will do this again on tesla

as well. stephen stanley, of amherst particularly on economy in the spirit of american investment, something i want to talk about as well. coming up, elizabeth economy, she is truly an expert on china. mr. mnuchin would do well to read her wonderful new book, "the third revolution." we will talk to dr. economy in a moment. elizabeth on her china. stay with us. francine lacqua in london, tom keene in new york. across all of canada, good morning. much more coming up on washington. this is bloomberg. ♪

♪ tom: good morning everyone, "bloomberg surveillance," francine lacqua in london, i'm tom keene in new york. coming up, china. here is taylor riggs.

taylor: the white house appears to be changing its story on stormy daniels. president trump reimburses lawyer for $130,000 in hush money paid to daniels before the 2016 election. back comes from former new york mayor rudy giuliani, who spoke to fox news. last month he president said he did not know about the payment to daniels. president trump says stay tuned for news on three americans being held by north korea. the u.s. is working hard to gain release. possibleparing for a summit with kim jong-un this month or next. stores on u.s. military bases have quit selling chinese made smartphones. they pose a security risk to military personnel in operations. authorities say they cannot specify technical aspects. a setbackic figures

for european central bank policymakers. inflation in euro area unexpectedly weakening last month, consumer price growth slowing to 1.2%. debateddies the over whether the ecb should pare back stimulus. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg.. francine, tom? tom: a few years back and this is what happens when a book gains traction and becomes huge -- elizabeth economy out of michigan wrote a book, "the river runs black." it redefined the discussion of the ecology of china. she has moved on to energy. now she launches today from the council on foreign relations, the new must-read on china. no question. it. up and read she is with us.

we are thrilled you are with us. what did you learn about president using paying? xi --esident gig president xi? elizabeth: he is opening up everything to create a new model of politics at home and abroad. much more ambitious and expensive internationally. tom: stephen stanley with us, the issue here, america has a new view of china -- the trump view of china let's call it. if you are sitting with the president, traveling with secretary mnuchin, what would be your single piece of advice to say to them, you are wrong, this is a you have to do it? elizabeth: get your allies on board. the one good thing president trump has done and his team, is to put the chinese on their back foot. the threat of tariffs has

surprised them. they came to the table last february. we are all over the map. we are threatening tariffs on the europeans and japanese. we all share the same view of china. we should be working with them, not simply dividing ourselves from our allies and china. francine: what do the chinese want? i was told that the chinese want to be accepted as a superpower of this world. how do you do that while getting what the u.s. wants from them? elizabeth: in china, in march, for the first time, you're right. i heard someone in china refer to the country as a superpower. for a long time they have been a regional power, emergency power. xi, they want to reclaim the centrality of china on the global stage. how do they deal with united states? how do they get what they want? they don't.

what president trump is trying to push them to what they want to do. they're made in china 2025 program, which is to protect the industry in china, is antithetical to getting u.s. companies in open market access with a fair deal. francine: should the u.s. have some small wins? financial, u.s. banks, bring them closer -- are you more worried about the fundamentals? or more worried about peter navarro for another advisor going there, being anti-chinese? elizabeth: their back is already up. that is an odd delegation going. they do not agree. people are calling them the trade avengers. who is speaking for the administration and this delegation? they did not send an advance team. there is no deal we know that will come out of this.

it is already problematic. i don't disagree with the trump administration's tough stance. china has cheated and cheated and cheated. what do you do with a country that sheets? you can -- that cheats? you can stop playing or bring other players to the game. presidentve a steeped in the stall to, in every way -- steeped in nostal gia. what is the nostalgia of the chinese elite? elizabeth: that dates back centuries. tom: pre-capitalism china? elizabeth: pre-industrial revolution for sure. dating back to the -- tom: that far? elizabeth: to the time when china was an innovation center. tom: one of my books of the summer, how does elizabeth economy defined the new marco

polo road? the silk road -- this economic development. is it a marketing campaign? elizabeth: this is one of xi's initiatives. it began as infrastructure, connecting china to other countries. it has morphed. we have a digital road. the satellite system, e-commerce, they want to use it for internationalization. they're supporting a political model, security objectives, getting control of ports, so they can get their ships to dock there, this is very significant. they're facing backlash. the way they do business is problematic. no transparency in the bidding process, environmental issues. there are protests throughout these road countries which get ignored. francine: let me bring you back in, stephen. when you look at the world economy -- i don't know if we

are putting too much impact on the next 72 hours -- let's say something goes wrong. someone is mad. trade tensions escalate. do we know how much growth it would shave off the world economy? stephen: that is tough to say. it is a matter of how far does it go? or is it fivetat rounds of tit-for-tat? ist we have seen so far likely to have a limited impact on the economy. you don't know where this will end. it is an interesting gambit. you're risking harm to the economy in the short run to get a superior long-term solution. it is tough. a lot of people are looking at the short-term saying this is crazy. others feel it is a good strategic move to try to bring china to heal in the world economy. francine: is it dangerous at the specific time because we have

had indicators in the last three weeks that the world economy. stephen: the world economy is in as good a shape as you have seen in recent years. certainly the u.s. economy is strong. it is not a terrible time. protectionism has come in the middle of a recession -- a populist type thing. that is absolutely worse. we saw that in the great depression. time is never a great to try this. tom: elizabeth economy, buried in the back of her book, quoting philosopher,ican "be prepared." is donald trump prepared for what is before him on china? elizabeth: that is the boy scout rule. president trump doesn't necessarily have the path all the way marked out.

he is gotten the chinese on their backs, but they are doing other things as well. they are looking at reform of the foreign investment rules, they are also going after the wto on chinese protectionist licensing. there is a multi-strategy that is lost. how this trade war, this tariff war plays out, i'm not sure he has a sense of that. tom: we are in a political soup, and i get all that -- make america great, great, great, great. is there anything multipronged about china? elizabeth: china is trying out soft power. they're trying to get out there and say we have our own model of development. we promote infrastructure, opening to the outside world, stable political development -- a better model than the chaos in these liberal western democracies. they are out there training officials in africa, latin

america, southeast asia. tom: i want to come back and talk about resources and your expertise from the classic "the river runs black." i cannot say enough about elizabeth economy, without question, the new 240 page primer on china. maybe steve mnuchin got an advance copy and will read it on the way home. stephen stanley with us as well. bloomberg.com, i love the new look. elon musk did not hang up on bloomberg.com and go to youtube today. we feature tesla up top and a lot on politics. i am thrilled at what general shipley and general o'brien have done with bloomberg opinion. stay with us worldwide. this is bloomberg. ♪

♪ >> this is "bloomberg surveillance," i'm taylor riggs, let's get the bloomberg business flash. bp deciding whether to buy energy access. according to people familiar, seeking more u.s. shale. the energy producer working with morgan stanley, bp might team up with buyers. they could swap conventional oil and gas assets for shale. amazon wants to tap into the $30 billion years pet food industry. launching a brand called, wag. starting off with private label dog food and expanding. the rand is available only to amazon prime subscribers. the ceo of a deed is company does not support kanye west's controversial remarks suggesting slavery was a choice. west is a designer.

adidas told bloomberg has not discussed dropping him. a a large global company, very strong presence around the world. that will continue to perform well. >> i hate to press you on this but, if someone makes comments around the issue of slavery, sort of implying that it was a choice, that goes beyond your average comment by next are not collaborator. especially for a german brand isn't it important to get in front of that issue before becomes a problem for the entire company? >> of course it is. i have not been in conversation with kanye west in the last 24 hours -- it is clear exports company, we want to change people's lives through sport, we will have conversations.

i want to focus on what the company is about. delivering the best sporting goods products in the world and having our consumers buy those products. that is what is happening in the marketplace, as you can see clearly from the results we published. >> absolutely. final question on the subject. have you had any conversation within the business in the last 24 hours about dropping kanye west? >> no. meanwhile adidas running into currency headwinds, first-quarter sales rose 1.9%. u.s. revenue translating into fuhrer euros because of dollar weakness. that is your bloomberg business flash. tom: thank you. wonderful to have you with us. stephen stanley, american economic growth. today we celebrate elizabeth economy on the council of formulations and her wonderful and timely new book, "the third revolution."

i want to bring this back to how we came to know you. theyone in the world read "river runs black." give us an update. elizabeth: the environment has become an issue of legitimacy for this chinese leadership. when they took power, the people were in the midst of an internet were calling on the regime to do more, particularly on the air quality issue. 1.8 million people were dying prematurely every year from air pollution. over the past five years we have seen this leadership make a concerted effort to address this issue. they have had success. we have seen over the first three quarters of 2017, even in the targeted cities and coastal areas, most important to leadership, air pollution went up. overall, they've achieved progress. 33% improvement. every time they turn on that credit, pollution goes up. economics the same?

is there a profound difference? elizabeth: there is. the matter how much business people, at the outset of the xi regime thought he would turn out to be an economic reformer -- we have seen the opposite. it is all about increasing the role of the party in the economy, heightening state owned enterprises. there is no doubt he is a committed stateist. he wants to control and fine-tune to achieve his broader objectives. francine: do you trust the data out of china? i don't know if you can hear me, do you trust the data out of china? tom: do you trust the data out of china? important question. not only the marketing data but the gdp data -- do you trust the

environmental data out of china? elizabeth: one of the great innovations that many chinese now walk around with hair held air-quality monitors, even in microclimates, the quality of the air -- they have the small samples they can do for water and send in and get a read on the local water quality. tom: does the government care about that? my family is checking the air. does a totalitarian regime care? elizabeth: they do. the environment is one of the largest sources of social unrest in the country. they are bound and determined not to have that protest. tom: you will be in a panel, robert ruben loves your book. we need to know what elizabeth economy thinks of the great divide at the white house. who is right and who is wrong? elizabeth: i think they are both wrong. peter takes ahat,

stance that we should be tough on china. we can draw from the transpacific partnership, don't bother with our allies. he is hardline. it does not serve our purposes. on the other hand, mr. kudlow -- we need to give the chinese a kick in the pants, put them on notice. they have gotten complacent about the united states, thinking they can talk and talk and never open. we need the type of hard edge -- i'm ar brings or fan of finding middle ground between those that think let's reduce tension, go along and let's say, stop the train. tom: thank you so much. congratulations on the third revolution, with the council on foreign relation. we continue with stephen. let me tell you about tv . this is brilliant.

you can come over here, look at francine lacqua's brilliance, dazzling morning conversation on the devaluation of the turkish lira, in brent crude. where else are you going to do that? g tv . this is bloomberg. ♪

♪ >> this is "bloomberg surveillance," from new york and london. let's get to a viewer comment. this is an integrated show, you can always slap down some of the graphics are charts, especially if they are tom keene's. they can always criticize yours. this is a viewer that wrote in after we said, lower-than-expected reading of cbi, especially core inflation may hurt aspects of online from mario draghi. this viewer wrote, no surprise. that is what he wrote because let's go back to the first screen. i was slow in reading that.

he goes on to talk about the drive this is important. if the median estimates don't price it in then markets would see it as a surprise. correct? >> sure. market participants don't do their own forecast. they are dependent on people like me. people depend on the estimates to have a sense of what will happen. tom: let's go to the single best chart with stephen stanley. the partial differentials of investment across gdp. this is the two-year yield, the artificiality of cfo and ceos working everyday. money is cheap. it is been cheap since 2007. there was a time back here when it was expensive. what are the investment dynamics ? stephen: a couple thingsave changed. money is still cheap.

that has not been impacted for a while. we have had week investments throughout the expansion -- weak investments throughout the expansion. what has changed as we have had improvement in business confidence over the last year. tom: investment from the president's legislation to make america great again? stephen: you approve the economics the tax reform. we are not seeing a huge up swell of investment yet but it has only been a couple months. there are plenty of evidence to suggest it is coming. tom: is that investment going to happen in america or u.s. multinationals and companies employing investment abroad? stephen: both. some aspects of tax reform will encourage businesses to do more in the u.s. the change in the way they handle international income and the like -- some of that money,

you saw apple and the earnings announcement -- some of that money trap overseas will be brought home and reinvested in the u.s. economy. tom: stephen stanley, thank you so much. much more to talk about. jobs day tomorrow. kkr, approving a plan to convert to a corporation. jason kelly will be talking that up on daybreak later today. don't forget, continued coverage today from china into tomorrow as secretary mnuchin visits with economic leadership for china. stay with us worldwide. this is bloomberg. ♪

♪ >> i'm not here to convince you.

do not buy our stock of volatility is scary. there you go. >> tesla gets testy. shocking analysts and investors refusing to answer questions on model reproductions and cash burn. telling traders to sell. the fed adding the word symmetric to outlook. questioning the trade. let's get ready to rumble. the u.s. trade superstar delegation kicks off in china. hopes are dim. david: welcome to "bloomberg daybreak," i'm david westin with alix steel. it is my son's birthday today. alix: really? david palmer, happy birthday. david: meanwhile, elon musk. alix: terrified. we have to talk about that. in the markets, digesting that crazy tesla call. we will talk a