francine: the $2 billion demand, to decrease the benefit -- the deficit by that amount. so much to do, so little time. to can -- to set extend the brexit transition. will prime minister may be able into it?he hardliners ♪

good morning, everyone. welcome to bloomberg surveillance. we saw declines in asia. that is not filtering through in europe. rows.oxx 600 this is what traders are looking at. they are looking at any kind of application of trade tensions rising as steve mnuchin and his team are in beijing. let's look at any impact on euro-dollar. that may swing depending on the jobs data later on. i'm also looking at the pound on the back of local elections here in the u k. up, in'twas a big day for bank earnings. we have been speaking -- it was a big day for bank earnings. brexit with carson

nickel. njera: [indiscernible] >> certainly, often ceos can be disappointed or disturbed by questions or don't appreciate multipart questions. outrighthe level of dismissiveness was unusual. francine: this was on the bloomberg terminal.

a look aty, but also the trials entry relations of executives. the u.s. is requesting that lash its trade deficit. ours get to beijing and to china markets editor. they to have you here. we had breaking news. documents laying out the demands that the u.s. has. does that make it difficult. ? does that make the upcoming meetings uncomfortable? them meetings are coming to a close in beijing. the u.s. delegation due to fly out in a number of hours. it would seem to make it difficult to come to some consensus. we are seeing headlines crossing the terminal from the state news

agency. they say china and the u.s. did reach some consensus on some issues, that there are still some major disagreements between the two parties. it did not say on what or give any details. we have to look at that as well and the view documents in that context. they previously asked for the trade surplus to be reduced by $100 billion. to $2 billion. china already rejected the initial demand. francine: if you look at the breaking news just now, this is a local chinese agency that the the u.s. and china agree on some issues and not on others. that is something we would

expect. do we know what they agree on? is there a willingness from china to maybe deliver some of the promises they made to the world just to please the trump administration? emma: perhaps. there's been very little information out of the stoxx. we had very little information from both the chinese and the u.s. side. the chinese have said publicly -- have seemed publicly to embrace these talks. it seems like a trump administration-driven thing. maybe they are getting an olive branch. maybe they are showing that they are willing to compromise on some things. whether it is the demands that we know about from the documents we obtained, who knows? andthey are quite steep they are over territory that china has pushed back the four, curbing them made in china 2025 initiative to turn china into a

high-tech economy by 2025. that trade surplus demand that we mentioned before, they do seem to be quite stiff demands, not the sort of ones you would make if you are coming to reach a compromise with china, i would say. francine: do you know what they could agree on? emma: that is an interesting question. perhaps it is to do with markets, access. there are a lot of u.s. companies pushing for access into various industries in china. we have seen a gradual opening up in the financial sector. in autos as well. a reduction in car tariffs in the last week or an officer -- or an offer to do so, which would see an overture from beijing. it could be. to do with the currency. donald trump has expects --

yuanssed in the past the weakening. access issues is what i can think of at this stage. we don't know any details from the chinese side. francine: thank you so much. this tough talk me for the dollar? what does it mean for investments? christian keller, head of .conomic research at barclays thank you for joining us. let me start with you. they agree on things and disagree another's. -- on others. what does that mean for tensions? are they increasing or decreasing? >> we knew this would be a prolonged and protect the process. the demands are quite high. . it was $100 billion and now it is 200 billions -- $200 billion.

savings are very low in the u.s. the u.s. will increase trade deficit. tona seems to be willing open, but will they retreat from the 2025 strategy with their technology goals? i doubt it. uncertainty as high. if you look at fx volatility, marcus a dome prize the kind of potential risk, even beyond china. sentiment indicators already and some interesting correlation changes. with higher u.s. rates, we see strong dollar. we see weaker equity markets. that all points to high uncertainty and high volatility ahead. francine: first of all, you know emergent -- emerging markets like no one else. you know how they negotiate. the fact that they said peter navarro, people who are anti-china to china, how would

that be received by the chinese? >> absolutely. this is the single important focus, the fact that it was not only mnuchin, is light heiser and navarro. they have to pick one person to be the face of u.s. white house trade policy changes, it is light heiser, nomination. the conversations we had in washington recently, they point to a much more brazen agenda. it will not be a walk in the park. francine: we are seeing breaking news out of corporate u.k. parent company of british airways that says it has been in contact norwegian error about a possible takeover. they say norwegian has rejected conditional proposals. that is breaking on the

bloomberg terminal mall -- terminal. iag saying it did have contact with norwegian air and the norwegian board. we spoke with the chief executive 10 days ago. saying they will look at it but rejecting the two contingent all proposals. down by nine point &. iag up 4.7%. norwegian isle -- 9%. nine point -- iag is up 4.7%. do you feel the world economy has picked for this year? data points suggested a possible downward trend. >> we definitely saw soft data in particular in europe. we believe this is a soft match.

potential in the second quarter to grow substantially stronger than the first. we are still hopeful. if we don't see an escalation of the risk we just mentioned, the underlying impulses are still with regards to momentum in labor markets in the u.s. and europe. but there is a lot of uncertainty. it will play out in the coming months whether we go to a path where we go back to global synchronized good growth in the optimism we had our whether this will turn into something where we will export it and say we are past the p. francine: what is your assessment? it is unclear whether it will have impact on monetary policy or a normalizing of growth. >> we believe there will be diversions of growth in the next six months.

there is more scope for potential upside surprise in the u.s. economy. it is an economy on fiscal steroids. for the moment, it is still good. in europe, there is at least more stabilization of manufacturing, the manufacturing cycle at the current level. we are now not going upwards anymore. there's negation of the trent, positive -- of the trend, possibly opening a diversion's. it applies -- opening a divergence. you don't expect the numbers to boone. there are so many aspects year that are coming to support this picture. in this context, we have to revise the dollar view. you can buy the theory that it is the best currency and should be trading weaker versus the

world. but the moments now, looking at this quarter in the next, that could be dollar straight on the back of divergent growth. stay with us. stay with surveillance. plenty coming up, including a bank breakdown. disappointing earnings. we will bring you interviews. could britain's eu membership go into extra time? u.k. officials are set to floated extra longer transition period. this is bloomberg. ♪

♪ francine: this is bloomberg

surveillance. a beautiful view. it is not often that it is not raining in london. it is sunny. welcome to london. hsbc is returning money to shareholders, but it was not enough to please investors. the stock is down after the bank reported costs that rose at a faster pace than revenue and suggested it would reinvent excess capital in the future. i want your thoughts in just a second and the difference between hsbc and the emerging markets and the french banks. i think the buyback we mentioned this morning is broadly speaking in line with the pattern of what we have done in the last couple of years.

the look from our capital management perspective, the number of the first quarter is the government of what we see in our network markets. much ons is very putting capital to work as supporting organic growth of the firm. this quarter, we are sitting on a tier one ratio of 14.5%. we see the opportunity to return to the shareholders $2 billion worth of buybacks. i think that bears out the strength we are seeing in terms of growth in a number of our market. >> you talked about positive growth opportunities and

spending the money there instead of returning may be more. what are those positive growth opportunities you envision spending the money on? >> this is very much focused on organic growth. we have seen that coming through in 2017 and also the first quarter of 2018. we have seen good growth through our retail bank wealth management services in hong kong and in the united kingdom. both markets are proceeding reasonably well. also good progress from a commercial banking standpoint. that is strength in the asian markets on the united kingdom. it is really about organic growth, in our home market. hong kong and the united kingdom and the wider network. >> of course, we wait with anticipation for the strategy update to come later in the

year. how far along that process are you? will kind of update will we get in the second quarter earnings on strategy? >> we're making good progress. this rating gauge meant with john and the management team and the board of directors. we are working through that process and very much expect to do an update for investors either at or shortly before the half year results. we will get good guidance at the point as to how we continue to find lower if it we have been doing and step forward from here. francine: that was the chief financial officer for hsbc. theyakeaway is basically are struggling with keeping costs under control. can the new chief executive keep a handle on it? >> this is where investors are keen on hearing it. whichically the strategy will be his mark on europe's biggest bank. we here they are looking for

growth in the asset management business. further retrenching a very large sprawling empires. yes, the cost is slightly growing more than revenue, something that has alarmed investors. when you look at the changes at the top, we have deutsche bank and we heard of some recessional -- reshuffle. what does it tell us about those specific banks? >> it is interesting to see they -- you have deutsche bank, under pressure, the revenue nubbin what it's supposed to be. it seems that the sudden up archer of somebody who was interested to ceo has created potentially a vacuum and forced

management to come up with a brand-new structure right in the middle of the new -- for the bank. francine: we also had earnings from january. our business makes is quite specific. if you look on the markets, the biggest rival has been the equity markets in the u.s.. our exposure through the equity smaller. the u.s. is it is just demonstrating our business makes first. we are more geared on europe than on asia. >> when it comes to trading equities, you are not doing as

well as your european po's. equity, therey in are other ways to the rx than on cash. the market has been very dynamic on cash. in that specific segment, we can do programs from the young barriers. revivedo you plan to these investment videos. committed tomuch the 2020 transform. we just delivered in nasa november our target for the next few years. i will just take that objective and i will sport the t to deliver. this time, we are broadcast on

market share gains. if you look at the 2017 euro, the last figures coming from an external consuming desk consumer firm. it's early on our targets. clearly, the return of liquidity today is one of the best in europe. we cannot liquidate and of these bargains and rules. francine: you have already seen the performance of the investment bank improve over the past month since the beginning of the second quarter,. >> i put aside the global market activities and look to financing activities. the dynamic there is huge. the point for me is to continue to grow and touch new market share.

at theen you look french, they used to be best in class. are they still best in class or does this revenue put a spanner in the works? >> 2017 was a strong here. gains.e the biggest fortunately, you have the destruction at the top, where management changes. is still in play. back, what they need in an environment. will we see volatility back?

we are having to develop the markets and converging. the spread between the real rates are converging. that brings a competitive role that can be positive. obviously, this is positive in an environment where we used to believe economic growth was in the system. that takes me to the ecb. it is absolutely crucial right now. >> i think there is a lot of competition among banks. so far, we have seen more flattening, particularly in the u.s. tom: does the ecb has the most challenging bought -- francine: does the ecb have thus challenging job by now? >> i think the ecb continues to be in the most challenging job from a political set up, but also from the fed prints have been discouraging going into a

situation where the u.s. is able to normalize'? there are? question marks in the normalization process? sanders: thank you so much. bloomberg is finance editor. stay with us. so much to do, so little time. officials are set to continue distending the brexit while any customs regime is of limited. that resort -- that sport next. we look forward to the bank of week.d next this is bloomberg.

5 you feel comfortable and it goes down. .

♪ economics, finance, and politics. this is bloomberg surveillance. let's get to the first word news. the u.s. has called on china

to cut its trade deficit by $200 billion by the end of 2020 according to a document seen by bloomberg news that was sent ahead of trade talks. anraises a hurdle for overarching deal with two days of negotiating near an end in beijing with few signs of progress. the delegation led by steven mnuchin is due to leave china this evening. cable markets widely used effects benchmark seem manipulated have drawn attention from regulators. america's top two market watchdogs, sec, and commodity futures trading commission have opened investigations into the gauge of stock market volatility and say one topic of examination is a monthly process through which the price of vix futures contracts is titrated. analyst aboutn tesla sharess -- fell 5.6 percent, the biggest

drop in more than a month after his earnings call. >> it is unusual, often ceos can be disappointed or disturbed by questions or do not appreciate multiparty questions. but i think the level of outright dismissiveness was unusual. north korea has reportedly agreed in principle to accept international atomic energy agency inspections and its nuclear facilities with the u.s. according to a south korean newspaper, that is with the goal of denuclearization i-20 20. -- by 2020. global news 24 hours a day, on air and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. francine: the brexit transition time will need to be extended possibly for years to allow time to implement a new regime

according to senior british officials. they say any arrangement by the end of december of 2020 when the time is going to end. cabinet thatas a is deeply divided on brexit policy and how likely will they go into extra time? .oining us is carsten nickel thank you for being with us. what is going on? we do not know anymore, the government position on customs union or not customs union. and talk about the timeline. will they get it done in time? >> in terms of extension, nowhere near that at this point is we have no idea what it is the british -- a police that -- not them have a conversation with itself it is

the british cabinet having a conversation with itself about to custom union projects, neither is likely to have a majority in westminster or will work in practical terms. both have been rejected by the european union. unless we have sorted that out, i do not think we are talking about it. francine: the probability that brexit gets slaughtered out to a point where we do not feel it is areit, or theresa may -- probabilities still in the air, all of them? >> already operating in a space which has been narrowed successfully by the brexiteers over the last two years. something like single market membership and freedom of movement, all of these issues we , theebating 1.5 years ago norwegian model is off the table and now something specific. we are very much in a hot brexit space -- hard brexit space. francine: customs union would be

attached to read lives that the u.k. would have to walk away from. >> exactly. francine:? does it feel like brexit if we stay because in the union than leavingofter the customs union altogether but take a step back 1.5 years ago and debating whether the u.k. may stay in the single markets and nothing like that. francine: market reaction because of what it means for mark carney. we have local elections and labor did not do as well as they could have, related to brexit? >> i do not think it tells us all a lot about brexit and not with the results we are looking at. structurally, president, -- theresa may had a comparable experience, well in , the ability to

a -- francine: what does it mean for mark carney and boe policy? >> for next week, not that much but overall it means they continue to operate in a situation of high uncertainty. they have said that weird -- they have said that already. u.k. with a better than expected performance but economy was slowing. pmi data this week, service came in softer than we hoped. next week, a short think they will not hike after four weeks ago it was certain they would hike. the bank of england will have to operate in the environment where continued uncertainty which will make it more difficult for them to make decisions. >> i do believe that what the markets are implying in terms of bank of england activity, hiking rates over the next 12-18

months, if that materializes, the chances of inflation in the u.k. are big. the last gdp prints are showing the breakdown and not in consumer demand. it has been supported by investments. you mentioned, there are so many? marks.we aren aligning more towards her brexit that is harder brexit than anything else. carney, he makes sense, bad for the boe to take a step back. and reassess the underlying growth in the u.k. economy. francine: all of this is very well and good, doesn't investment get hurt depending on what kind of brexit we get, or does it get hurt if there is not a political party in charge? how should we model the

possibility of labor being in charge and having new elections. >> i am not a politics got, but if --guy, the big problem we face is massive polarization. not just unique to the british case but something we see a cross rich democracies. conservativeat a party, but that implies pushing for a hard brexit. you can say i favor the labour party from an investment perspective because of the custom unions but you are dealing with jeremy corbyn and we know what that means for the economy. >> a remarkable difference, it seems that larger global players were quite concerned about investment. , who werer businesses confident after the brexit time, and started to invest. the bifurcation with regard to investment between the larger companies who are the more

global view at the domestically oriented. francine: let's talk about the pound, not cable but euro pound, if you look at my chart and bring it back to september, it has been trading sideways. what exactly needs to happen at this point to move pound? >> we need a more authoritative move coming from the bank of england in terms of, everything we have been talking about, let's reassess. we will not be as hawkish as the markets expect. i do not think we are far away from this moment of truth. of of the issues, in terms support for the u.k. economy, it would be nice to see a weaker pound. that can be a marginal help in a moment where underlying growth is not doing well. francine: we look at the u.k. from a political point of view, a pound an investment point of view and sometimes forget in

london to look at it from a european point of view. what do the europeans want out of this, a political decision or will cooler heads prevail because the eu has a lot to lose economically? >> it is a technocratic process we are in. sequence, on the european side, dealing with 27 member states, principal agent problem. it is a task that has been outsourced to the european commission. politically, no wish to deviate from that because it us play that well. what the eu wants is clearly from the u.k., what they are after in terms of customs unions and future relationships, we have not seen much on that. francine: thank you so much, luis costa, christian keller, and carsten nickel stay with us. be jobs report, the latest numbers, was the march reading a fluke? alibaba's shopping spree,

suspected to post their first profit decline in 18 months. should investors be worried about the ceos freespending ways? this is bloomberg. ♪

♪ let's focus on the u.s., the jobs report, willie confirmed the week results from march? is 192,000 jobs with the an employment rate may have fallen to 4% and wage growth still sluggish. with us is luis costa and christian keller and carsten nickel. i love the guesstimates on twitter.

let's talk about something more predictable, treasuries, or maybe not. we were worrying about the curve inverting, continuing to flatten which would result in impending economic doom and gloom. it did not today or this week for the first time. is that over, the flattening? are we seeing treasury streamline? so, in ourt think measure of neutral interest rate in the u.s. is something along now, 1.7%, given what is implied in the market in terms of fed hikes over the next years, we could be coming very close to that. and very soon. that tells me that the economy can choke. the u.s. fixed income markets are incredible predictors of a slowing economy. they do not give you the date or month or quarter, but a

perception of how bad things can get at how the economy will respond down the road. that is a very clear message. i believe that, if you believe the fed is an clockwork mode, my assumption, you think they would deviate from what the dots suggest. it can be trouble down the road. they do not now or next week but can be trouble down the road, especially for growth assets. francine: do you agree? >> people believe in clockwork in terms of they continuing to-the same people they tell you that they believe there is a high chance for recession in 2020. if that is so obvious, do we believe the policymakers at the fed will walk into this. they could say, we do not believe in the inversion of the yield curve and create recessionary risks. our feeling is that they are about market -- us

do about markets and they will be wanting to avoid a flattening or an inversion of the yield curve. francine: you suggest they were worried about it and it is the biggest dilemma, the flattening of the yield curve could lead to an inversion and they will do everything for that not to happen? is that fair? >> it is stated that ended, if dated does very well -- data dependent, if data does very well, we see it coming off slightly. if the inflation picture does not look we will overshoot ,assively, they will be worried whether they want to create an inversion of the yield curve risk, the risk of putting an economy into recession. francine: to your world, if you look at the fed, a lot has to do with policy, especially when it comes to trade. a trade war or trade tensions,

putting up barriers and tariffs hurts the economy, what is likely that president trump does not get a deal and turns on china significantly? , we are nowhere near a scenario where there is pressure on trade will add weight anytime soon. if you look at the eu, we saw progress, a new trade deal. it is clear we have paid the price for that in a sense that some of the trade deals have become more limited. in the u.s., the push to renegotiate nafta, and look at relations with e.u. or china, continues. if you look at the underlying polarization in the u.s. political system, that is the key driver. francine: we look at italy, our markets ignoring political risks? you will still have a government and do not have possible combinations of this point. >> may be the market assessment is down to the fact that we are

used to that situation from the italian political context. in italy, let's give it a week until we run out of the possibility of holding elections before the summer. route then entering a new where the pressure becomes potentially bigger to find a deal. it will take time. francine: do you see pressure coming from periphery europe? mario draghi sitting down next year. >> markets will again mario draghi's succession, not looking at the periphery so far, people got used to the situation and they will go the third round on monday. for the third time try to negotiate a government, even if that doesn't work out, we will get technical governments that will push a new election into 2019. italy has been -- it could turn into one of the worst

investments depending on the political direction. they are still exploring alternatives in terms of alliances. they are going forward with new elections. it is a risk. in terms of ecb succession, difficult to find something more supportive than mario draghi to solve in europe. whatever alternative we find, it will be more hawkish, and that can be a serious problem for political europe. francine: we thank all of our guests this morning on friday, fromen nickel, luis costa citigroup, and christian keller from barclays. outgoing new york fed president joins matt winkler for an exclusive one-on-one conversation, i next interview as he prepares to leave the

largest and most influential federal reserve bank. that interview at 5:30 p.m. u.k. time. ramps up spending to compete with its regional rival but could jack ma's shopping spree turn off investors? we are live in hong kong next. this is bloomberg. ♪

♪ economic, finance, politics, this is "bloomberg surveillance." i am francine lacqua in london. >> the analyst elon musk was harshest went on the investor call says investors are more -- anxious of the kessler -- tesla, their shares fell after elon musk's remarkable earnings goal. -- call. ceos canunusual, often be disappointed or disturbed by questions or do not appreciate multipart questions. i think the level of outright dismissiveness was unusual. >> berkshire hathaway has fought

another 75 million -- bought another 75 million apple shares, backing their ability to generate profit according to cnbc, citing warren buffett. the stock purchase adds to the arm was 170 million shares berkshire hathaway already owns an apple's third-largest investor. that is the bloomberg business flash. francine: alibaba reports fourth-quarter earnings and is expected to post it profit, the most short in stock in wall street and the most by analyst recommendations. conflicting extremes. let's get to our technology reporter. what is driving investor concerns? >> whatever investor concerns are, that is already reflected in the share price. the company has wiped out $61 billion in market valuation over the past few months.

what is happening right now is you see the company to buy and spend for revenue growth and they are investing in sectors like cloud computing. new retail and online video streaming, and entertainment. those are sectors that is largest competitor is going head-to-head with the they have no other option but to spend all of this money. that is weighing down on their margin and investors are seeing this coming down the road and do not see this changing or actually seeing a turnaround in the year coming. that is weighing down the share price. francine: we have $34 billion in short calls but on most every analyst recommended a buy on the stock. how does this work? >> that is a really interesting phenomenon. you see the bears come to the market. this is more of a short-term concern. on the long-term, the early

investors say that this is a company that will grow into a trillion dollar company. all -- a research company is bullish on them, calling alibaba a coiled spring. -- hows of where you are long you are putting your money into this company, in the short term, sector wide, a route. taketors who want to profit we saw last year, they are probably selling in this part of the sellout. overall, are there sector wide factors that are impacting them? >> absolutely. wem global tech companies, see a general selloff a cross-border. part of this stems from the fact that facebook is in a debacle which is spurring concerns the regulators will step up their clampdown's.

in china, the state taking an increasingly bigger interest and taking control over some of the largest tech titans. amount of returns from investments we have seen in the sector are very unlikely to be repeated. that is why some of the investors are taking a step back and saying, hold on, let us reassess our investment positions. francine: thank you very much. surveillance" continues with tom keene joining us in new york and we later happen interview with the outgoing new york fed president. this is bloomberg. ♪

♪ the $200 billion

demand, u.s. is asking china to drop the deficit by at least that much. lower over a $2 billion share buyback. time.h to do, so little u.k. officials are said to -- to consider extending. may be ableinister to talk those on the side. job.w we have to focus on we also have to focus on banks, especially the french banks we thought could do no evil they came in short of estimates. tom: yield compression over the last two or three days. it really goes into fx instability.

francine: i'm looking forward to speaking about pounds a local election coverage and what that means for brexit. let's get to first world bloomberg news. tell her column there is one area of agreement after two days of trade talks between the u.s. and china in beijing. the two sides agreed to keep on talking. there was consensus on some issues, but major disagreements remain. therding to a document, u.s. wants china to reduce the trade deficit by $200 billion by the end of 2020. two developments today from the korean peninsula. first, the u.s. has denied a new york times report that president trump ordered the pentagon to prepare options for withdrawing u.s. troops. that comes from south korea's presidential office. meanwhile, north korea reportedly will allow international inspections of its nuclear facilities with the u.s.

potentially an explosive decision involving brexit. periodrexit transition may have to be extended for years. any new customs regime will not be rate to come into force in time. for now, the transition is scheduled to and in december 2020. the analysts that elon musk accused of asking "boring bonehead questions" is now having his say. investors are more anxious about the electric carmaker. 6%res of tesla fell almost after that earnings call. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪ we seem to have missed an

important story happened last night. grocers were in london, a quiet moment as all of london came to a complete italian halt as the italian embassy in london -- the order of stella artois. tell us about this. this is a huge deal. tell us what happened. francine: thank you, tom. i am a little bit embarrassed. it was sunlight. we were surrounded by a lot of people on the team and people who supported us. i really missed you. out of luck, the italians gave us this honor on world press freedom day. francine: i was agitated -- and i was at jfk

stopped at customs, the italian custom saying, no, you will let a 10. this is a huge honor -- he will not attend. this is a huge honor. let me do a data check. there are some seriously going on in the markets. the vix 50.87, euro-yen, this is a big deal, we are euro, stronger yen. majore two emerging-market currencies just converged. the argentinian peso flat out in freefall. this is a huge story for may. story.e: it is a huge we are looking at the turkish lira.

with elections coming, we need to look at that as well. . stocks in europe are gaining. we had some declines in asia. the dodger -- the dollar edging higher. of bounceback in hiring is expected. that mina come through. a looking at financials -- i'm -- that might not come through. i am also looking at financials. tom: i should show a job chart, but i will not argentinian elections, both about chairman powell. long-term argentinian devaluation from the horrific 2002 devaluation. out goes stability it is important how this regression from the floating of the peso goes right on track.

this is a huge story for financial markets. all of this because of higher american interest rates. francine: this is a chart i should about 10 days ago. we had a lot of earnings this week, but we have folks focusing on the forecast. 500.is the s&p it has fallen below the 200-day moving average. this is a technical level that in the past has actually signified a selloff. we will push it out on social media. good morning to you, london. the u.s. has amended the china -- reduce the trade surplus by $200 billion. this is after two days of trade --s bass strait talks e

trade talks end. why do we know about with the u.s. wants and how it will be perceived by the chinese? is it antagonistic? >> we know this lists of demands was presented before the stephen-mnuchin led team arrived on thursday. this was presented as a list of demands they wanted to discuss in the two days of talks in beijing. we don't know how they were received. wally do know is that they has,d why news agency saying there is agreement on some issues but there were major disagreements but the two sides have agreed to keep on talking. tom: what are they agreeing to -- francine: what are they agreeing to? is it the chinese say we promise access to financial markets? we will just do it quicker?

are they counting on a faster timeline? or is it new agreements? ? >> we don't know at all what they have agreed to. they haven't given us any details. we have not got details from the u.s. they went into the negotiations with this lengthy and audacious list of demands. surplusunt of the trade of $200 billion by 2020, that was just the first of a long list of demands. i am reading from it now. government-sponsored cyber intrusion and theft. the china accord preferential access to the u.s. to some of its markets immediately and that it not hit back if the u.s. laddies any extra tariffs or other sentients. there's also the fact that both countries will need to meet

quarterly to review targets in relation to the trade relationship. a very lengthy list, which a lot of people we have been talking to have been describing as quite excessive. we spoke with the chief china economist. this list asks for the sky. it would be very interesting it the chinese had looked at it and agreed to any of it. have.'t know if they they seem to be giving a conciliatory message. we don't know that they have agreed to anything on this particular list. now, rupertining us harrison we have a billion things saskia. entree, what does it mean for your portfolio? can you start taking advantage? if there is an opening in financial services, it's too

soon to tell? >> i think it is too soon to tell. this is a risk negative factor. these emerging-market currencies are a key issue at the moment. the issue with the straight talks is that there's three sets .f demands really invited they are all very different. approach.he you have more straightforward reciprocal market access the mons. then you have this strategic challenge about chinese technology and chinese industrial policies. i think the scope for success short-term depends on which of requires the total event amount. there's a few things the chinese can deal with. that will move in that direction. we will like it that is results. thing, this technology

which is to prevent china from becoming a strategic investor in technology >> i don't think you will get any success on that david goneime soon does donald shop religious what he didable win get was move the market access. you can have a positive outcome if this is art of the deal getting in a few small wins in the return. i would expect this is more market negative in the exit months. we see tariffs put in place. that could be quite negative. youre schubert, i saw welcome here. they go to the major thrust i do not see in the american media. changed?hinese

is there any indication in london, never mind these distractions -- is it that same chinese face we have seen for years? or is there a new chinese attitude? >> i don't think there is a new chinese attitude on the crucial dimension, which is determination to move china forward in terms of technology, same time as the ensuring absolute control by the communist party. that is the core issue agenda that means you will not get changed during industrial policy , national technology, stress sheets, an aggressive pursuit of those goals. that is where we will see the strategic conflict between china and the u.s.. it is the new normal. --orgot at 55

coming up, unimportant interview in conversation with the fed president william dudley. -- it is john's day. martin feldstein.

♪ francine: this is bloomberg surveillance. banks.alk about the

hsbc is returning money to shareholders with a buyback. it was not enough to please investors. the stock is down after the suggestedggest bank it would reinvest excess capital in the future. earlier on, we spoke with the chief financial officer of hsbc. >> i think the buyback we mentioned this morning is broadly speaking and line with the pattern of what we have done in the last couple of years. the look from our capital management perspective, the numbers from the first quarter is the growth merriment we have seen across our network markets. we have a good revenue progression across regional bank , welcome our skin -- wealth management. our focus has been putting capital to work. strongsitting on a very

ratio. we equally see an opportunity to return to shareholders up to $2 billion in buybacks and a dividend that is to be announced today. the strength we are seeing in terms of organic growth coming through a number of our markets. >> you talk today about positive growth opportunities and spending the money there instead of returning may be more. what are those positive growth opportunities you envision spending the money on? >> this is very much focused on our very growth. we have seen that coming through. in. 2017, but also in 2018. we have seen good growth in our retail bank, wealth management business. that was formed in hong kong as well as in the united kingdom. both markets, for which are performing reasonably well.

that is formed by the strength in markets. ,ifficult trading conditions they did pretty well. it is about were -- about organic growth. of hong kong and the united network.nd the wider it is really that we are talking about in terms of supporting the activity with our customers day in and day out across our network. we wait with anticipation for the strategy update to come a little bit later on in the year. how far along that process are you? what kind of update will we get alongside the second-quarter earnings a strategy? >> we're making good progress. there's great engagement with john and the management team and the board of directors. we are walking through that process and expect to do an update for investors either after or surely after results.

francine: that was the chief operating officer of hsbc. you spoke with the chief executive officer of hsbc this morning. was it like having the top job? he said something like taking from a firehose. whenperfectly described you are under pressure, pleasant but you're still taking. what do they need to do to get back on track? >> hsbc disappointed expectations. this is not. a bank that is fundamentally broke. we saw a good growth just elsewhere in europe,m, america took a big misconduct charge he needs to sharpen the focus of the bank. abc hit out of the smaller come smaller, casa countries that are not paying their way. they need to improve technology which will in turn produce cut

costs. i think his comment about the firehose indicates how much pressure your under. an executived early for? francine: we hear from the swiss banks and the french banks and we want to get rupert's views on this surely. you want to be lean and fighting. why did the previous chief executives not focus on cost cuts. thaney may have cost more $6 billion but they are hasten to the scale of hsbc it is a lot easier to cut costs that to generate and -- generate revenue. that is what we saw in the first quarter. also, there was a disappointment on cut -- on buybacks. ? investor, if you are

you will be a bit disappointed when the -- that came out this morning. todd gloria if i gave you a writing assignment for monday and said what is the future this category banks, what you're book report on? at the end of this earnings season, i don't understand these just below two big to fail, bigger than regional banks fit in. they look like they are a search of what are we, who are we? are my right? >> most of the banks are searching for their post holiday they reported good trading revenue and seemed to be the ones able to compete with wall street in trading? he had this other counter of banks which are falling into the second category. what they need to do is work out what they are good at.

russ. do they want a lot of blanks slogging forward? will we all go to the canadian system 10 years from now? >> i think it is very different in the u.k. compared to the rest of europe? the government is so concerned about london as a financial center. they would like to see barclays, hsbc and others become global successful banks. in europe, the concern is more about having a banking system that can afford the recovery in dealing with unresolved issues around risk? i would be pessimistic on the front. i was in brussels yesterday, speaking to policymakers and politicians.

>> at the moment, the political environment is very, very difficult. i don't think we will see anything substantial at this point. the headwind is moving forward. . .> . . .

>>. . . the difficult stuff will not happen and i fear won't happen until we face another crisis. tom: thank you so much.

right now, a business flash. airlineow-cost norwegian air shuttle has rejected two takeover proposal of the parent of british airways. iag says it is considering what to do next. the way has been cleared for walmart to make a huge bet on international expansion. flip card has agreed to sell 75% of the e-commerce company to walmart for $15 billion. amazon has also made a bid. the top market watchdog in the u.s. is investigating the so-called steer index. they are looking into the vix measures stock market volatility. that is your bloomberg business

flash. much.hank you so we will continue with rupert harrison of blackrock. last more to talk about. let me tell you about jobs a. martin feldstein will join us in the next hour. jim glassman on bloomberg radio. we will release the data at a: 30 today. later, after the jobs report, the chairman of the fed with it's jobsdvisers, day. this is bloomberg ♪ mom, dad, can we talk?

sure. what's up, son? i can't be your it guy anymore. what? you guys have xfinity. you can do this. what's a good wifi password, mom? you still have to visit us. i will. no. make that the password: "you_stillóhave_toóvisit_us."

that's a good one. seems a bit long, but okay... set a memorable wifi password with xfinity my account. one more way comcast is working to fit into your life, not the other way around. tom: good morning, everyone. francine lacqua in london and i'm tom keene in york. we will get to much more on the american economy in a bit.

right now in new york city, your first word news with taylor riggs. taylor: in beijing, two days of trade talks between the u.s. and china have wrapped up and there's plenty of work to be done. china's official news agency says the two sides reached consensus on some issues that major disagreements remain. documents seen by bloomberg, the u.s. wants china to reduce the trade deficit by $200 billion by the end of 2020. beenbi reportedly has monitoring the phone lines of president trump's personal lawyer michael kellen. agents had the ability to see who called, but they were not able to listen in or recall. there was one call between the andhael pence phone the white house. is accused of conspiracy and wire fraud. ceo dayswn as

after the scandal was revealed. kilauea has spewed lava into the skies and residential areas after earthquake. some neighborhoods were ordered to evacuate. some described it as a curtain of fire. global news 24 hours a day and on twitter powered by 27 journalists and analysts in more than 120 countries, i'm tyler taylor riggs. this is bloomberg. francine: getting breaking news out of south korea. we understand that the south chineseresident and president have had a conversation could we know that they are scheduled to meet and whether they did meet.

they have spoken on the phone. if we have more details, we will bring them to you. market expectations for next week's bank of england rate hike have tumbled in recent weeks off the back of week data. what does the central bank policy path look like beyond that? rupert is still here and a little bit of an expert when it thes to politics and outskirts between monetary policy and u.k. politics because he was chief of staff for george osborne for a decade. we were with tom and washington, d.c. at the world imf meetings and there was a 90% press in the markets of them would be a rate hike in may. mark carney talk that down. can he do that now? rupert: it be very difficult to go now. that i be because of what he said and also because of the

data. the market price has swung a little too far away for the rest of the year. most expect that at some point this year there will be another rate hike. there will be a couple of issues meeting that the pace will be more gradual than previously communicated. the data has slowed down. it's not as slow as the headline gdp number would suggest. there were some idiosyncratic issues around construction. feels like the u.k. economy should be growing at 1.5% in the labor market is still decent. some other issues of the bank of england has been making noise about is the growth of consumer credit. there was concerned that households were read leveraging faster than expected and policy was more stimulative than they had thought. actionsy had done is have really tightly available the of consumer credit in recent months. we have seen very weak consumer data earlier this week.

the fact that they have been able to get on top of that consumer credit takes a little bit of the pressure off to raise rates. all those things pointing to a continue upwards path. francine: how should the boe look at brexit? i do not believe they have any of knowledge of how theresa may what's deal with the customs union. rupert: we deliberately don't have any idea of what to do with it because her style is not to step out of position and let other people arrive at their own conclusions. mayink the bank of england have thought that the june summit on brexit could've been a mini crisis with not much progress. i think october is the real backstop and these issues will be pushed back then. on the customs union, the issue is the u.k. government was talking about two options they had come another which will be ready in practice by december 2020 and neither which will be acceptable to the european union.

if the u.k. talking to itself while everyone else is waiting for an answer. i think the uk's want to have conceded that we will remain in the customs union for longer. they will get there eventually, but it will be a painful process. tom: why should brussels even engage now? i am baffled not by the cluelessness but the ignorance of london and the brussels response. doesn't brussels just up aside for a year or even two? rupert: i don't think the have the option. i was there yesterday and i picked up some aspiration of that in this situation whether the u.k. cabinet is just talking to itself. i think people understand the difficult situation theresa may is in. we had local elections overnight in the u.k.. the conservative party did significantly better than expected. i think that will give people in brussels hope that she now has a window of opportunity to stay down some of the brexiteers and

her party and make people friendly understand a difficult move on the customs union, which i do not think she will present as a permanent resting point, but we've got to accept that we have to stay in the customs union for several more years. she has a moment now where she is strong enough to do that. her track record is that she does not tend to lead from the front. she likes to let everyone else reach the same conclusion in their own time and i can make it a slow frustrating process. tom: that's called the japanese consensus as well. how does the labour party respond to a japanese like prime minister? rupert: the labour party is playing brexit both ways. they are edging towards a position of keeping the remain vote with them and making noise about the customs union, but at the same time, i do not believe anyone believes jeremy corbyn is a passionate believer in the european union and he does not want to get too far away from the blue-collar labor

vote. they are doing what politicians have the luxury of doing, which is playing it both ways and sitting on the fence. francine: i'm sure she has never been called like a japanese like prime minister. [laughter] that's brilliant. we have local elections and labor did not do as well. is that a brexit connection or could we be reading too much into it? rupert: there's definitely a brexit connection when you look at the pattern of the results. these were last contested in local elections in 2014 and since then, we have had two general elections and the referendum. the swing is really london versus the rest of the country and particular some of the brexit leading part of the country is the concern has been picking up seats. they have been doing relatively well for the labour party. it's where london had expectations really high for

labor. the expectations got way ahead of themselves that the labour party could take some of these high-profile councils and they totally failed to do that. they will be very disappointed that the lack of progress. francine: does it give theresa may more legitimacy and her negotiations without her party? rupert: her position as always fragile. it doesn't take much to bring mutterings back about how long she can last. a few weeks later, you're talking about what she could be here for years. these election results are very important for party leaders. that will be several months where she can point to the fact that she is ahead in the polls. the labor surge is not coming and it strengthens her position. want to be pessimistic, i think one of the things keeping the conservative party and line at the moment is the fear of jeremy corbyn. and maybe that fear has just reduced a little bit overnight. the next election is probably based to lose rather than a

threat of a corbyn government. francine: do you have any sense of the european union has a united front and that they are pretty tough on the nikkei or that the economy or economic sense will prevail? will they be a little more lenient with the u.k. closer to the time? rupert: it's a very delicate judgment. the message you get on the surface is absolutely we are all behind michel barnier. we do not want to be cherry picked and not up for bilateral negotiations. i think you do sense under the surface that closer to the time, particularly at the 10 make some move on the customs union, i think that will unlock a deal. i think there is movement on the eu side that is possible around the backstop situation that they have offered northern ireland to be available for the whole u.k. at the moment they say it's not possible, but i think that's where we will end up. tom: i want to tell you about bloomberg.com. really pleased with what i'm seeing here.

bloomberg.com with a whole new look. it is far more readable. down below in the opinion section, crushing it on bitcoin. that is a must read for anybody in the bitcoin world this morning. rupert harrison is going to leave this little ditty here on mr. corbyn. that so harrison understands what labor is doing. up here is a set of stories on mr. mnuchin, the president, and trade. bloomberg.com. this is bloomberg worldwide. ♪

tom: good morning, everyone. francine lacqua in london and tom keene in your. new york. on the dynamics in the butterflies flapping their

at ways worldwide, rupert harrison, vice president in charge of butterflies at black rock joining us this morning. in thee seen this united kingdom where there is an action in london and governor carney does something in it has an immediate effect in the markets. describe argentinian peso and turkish lira weakness to what we are seeing in the united states? can you as a next public officials say rates higher in america, butterflies flapping, and they get harmed in turkey and argentina? rupert: i definitely think there is a butterfly elements of this. it's really a combination of idiosyncratic stories. turkey and argentina aligning with a stronger dollar environment and this is the big deal and markets at the moment. enough idiosyncratic emerging-market stories together and it starts to look like a trend. these countries were able to survive in a benign environment with a weak dollar and support

for kerry. when the national story turns down and the dollar environment turns around, you get investors running for the exit and you do not get a much forgiving attitude. i think argentina -- argentina has the tools available i think to do with this. they probably need to think about fiscal policy as well as monetary policy. they need more aggressive action from the central bank, but they need fiscal policy and that's difficult for the government. in turkey, this is been a negative view for us for some time. you've got elections and a need for the government. they are stepping up the fiscal stimulus and i really don't to do what it takes -- and a reluctant to do what it takes and it will be a situation that gets worse before it gets better. tom: the basic conclusion that we have ugly glide past in this economy, does not go back to the developed world are can you at

least keep control the financial markets over the next 12-24 months? rupert: the overwhelming issue that we have been talking a while is u.s. outperformance. we have definitely been slowing -- the united states economy in the economy outside the u.s.. the u.s. is this outlier with big fiscal stimulus and a central bank that is on this and theath for now strike is a long way away. there is no way that the fed will ride to the rescue anytime soon. the thing keeping the dollar soft is flows out of the u.s. into emerging markets and european assets. the fact that those are coming back in a sentiment around the rest of the world means the forces lifting the dollar have had some key technical levels in the dollar euro to the 200 day moving average and for us, this is a big new theme and markets.

there are emerging markets that have been the beneficiary of whether this means the flows will reverse and the major volatility. francine: the treasuries for the first time in a long time did not see a spam in the yield curve, but is it possible inverted yield curve under the fed? rupert: they will cross that bridge when they come to it. i do not think there is any magic about the inverted yield curve, particularly in this environment where we have premium very compressed. their reasons to think there might be a longer like than usual between the yield curve reversing in any danger signs. at the moment on the tenure coincided with a lot of this kicking in. i think that was a bit of a warning sign to people and we still expect the yields of u.s. will continue to drift up because it's the only place in the world where you have this confidence -- confluence of which pressure coming, a stronger economy, and massive

supply. its relative to the rest of the world and we should see the u.s. yield continued to climb gradually. francine: the chart that matters to me is the s&p 500 with the 200 day moving average and the 50 day moving average. what is going to move equities at the moment. ? is it future forecast or does it have to do with currencies? rupert: currencies has been the major driver for the u.s. and in europe and the. those of than the major outperformance and recovering a lot of the loss ground. that has been very currency driven to the issue in the u.s. is that we have had this incredibly strong earnings season, but it's very well priced now. to market is very sensitive expectations with what happens to the earnings story later into the europea year. that is a concern for the u.s.

with pricing zocor for earnings and the macro. everything is fine and you have this ingestion of cash. you're facing a higher discount rate and higher yields and falling impetus for earnings and growth in 2019. that's what's going on in people's minds. francine: rupert harrison of blackrock stays with us. bloomberg users can interact with the charts. go to tv on your terminal. you can browse recent charts featured on bloomberg tv to capture and else's. -- analysis. we have a little bit of a standoff on the chart of the day so you can tweet us your favorite one. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get the bloomberg business flash. facebook has been doing research to see if there is a market for an ad free version of the social network paid by subscription. according to people familiar with the matter, the plans may not go forward, but there is internal momentum to pursue it

because of facebook's recent data privacy scandal. bmw increase profits from automaking in the first quarter. the world's second-largest luxury carmaker said returns on sales were up even though a stronger euro and spending on technology drag revenue. bmw is in the mix of a record rollout of new and refreshed models. a reversal of course at xerox. it company says a settlement had announced with activist investors carl icahn and darwin to replace its management has expired. that leaves xerox's existing board in place and at uncertainty to the fate of a $6.1 billion takeover by fujifilm. carl icahn and darwin plan to fight. that is your bloomberg business flash. tom, francine? francine: the fallout from that continues. that elon musk was harshest with at tesla's earnings call yesterday told bloomberg that the chief executive's antics were unusual. >> it's unusual certainly.

disappointedn be or disturbed by questions or don't appreciate multi-park questions, but i think the level of sort of outright dismissiveness was unusual. shares: tesla fell to the biggest drop in a month after remarkable earnings call. we are joined by the bloomberg opinion columnist. rupert harrison is still with us. we're looking at this tweet by elon musk where he basically says the questions were not asked by investors but rather by analysts who are trying to justify their tesla short thesis. he is still feeling this. it could not have gone worse, that analyst call. alex: in one sense yes, but it is not similar from the trump effect.

trump has his audience on twitter and elon musk also has his audience on twitter. this bashing of wall street plays very well to that demographic. those of the people who buy into elon like tony stark. and that audience plays into very well. francine: what does he need to do? this you need to prove that people who don't believe in him need to be onside and he needs that cash? how does he bring the company forward? alex: ultimately he has to deliver on the production numbers. that's what it really comes down to. that will give him cash because once cars get the liver, he gets some for the value of the car. it really does increasingly look like he will need more capital. the job of analysts is to direct capital. not getting those guys on the side seams a huge risk when it looks like they might need money later in the year. i'm absolutely from mr.d by the idea

musk that this is a short strategy. within your reporting and review of this entire conference call, was this a traditional buy, activistl or was it short investors on the call? which was it? alex: it was self analysts. when i was a beat reporter, he was a very smart guy and a percent this. -- perceptive. tom: mr. musk it's just flat out wrong about who is asking the questions, right? alex: he is trying to say that there were analysts pushing the short strategy. is not that they personally have an interest, but they have sell recommendations basically on the stock. that's what he's trying to say. tom: adam, this is critical. alex, excuse me. sorry, it's friday and the heat in new york. a cell is not a short, right? alex: absolutely.

he can play it up for a bit to his audience on twitter. who has the most aggressive fan boys -- apple, kanye, or tesla? tesla's right up there. alex,hank you so much roger. sorry, it's rupert. francine lacqua, help me out here. [laughter] in the next hour, maybe i will get professor feldstein's name right. professor feldstein on america's chilean dollar deficits. stay with us. i will get the names right in the next hour. this is bloomberg and that's topeka. ♪

♪ this morning, it is jobs day courtesy of the three handle

and eisenhower like unemployment jobs and are chronic $1 trillion deficits, martin feldstein of harvard university. there's a bette butterfly flapping its wings. chairman powell once better interest rates and that crushes argentina and turkey. the lira and peso plunged. secretary mnuchin delivers the unilateral message in bilateral talks in a multilateral world. this is "bloomberg surveillance." live from our world headquarters in new york and in bloomberg london, francine lacqua. much to talk about, but the trade talks with mr. mnuchin are global and indeed european trade talks as well. francine: they are because a lot of leaders are saying if the u.s. may be more on intellectual property and less on the deficit , they could also get the europeans on board. what investors and market participants are looking for,

jobs, but you mentioned brexit. there is little bit of nuance with the transition wanting to be extended and still not knowing where the customs union is. it's impacting the pound ahead of the boe thursday. tom: we welcome all of you. thrilled you been with us this week. let us please hear about you. send love notes to francine lacqua, bloomberg london. i enjoy your canadian hate mail. with our bloomberg first word news, here's taylor riggs. taylor: there's at least one area of agreement after two days of trade talks between the u.s. and china in beijing. the official chinese news agency says the two sides agreed to keep on talking. a report said there was consensus on some issues, but that major disagreements still remain. according to a document seen by bloomberg, the u.s. wants china to reduce the trade deficit by $200 billion by the end of 2020.

to developments today from the korean peninsula --the u.s. has denied a "new york times" report that president trump ordered the pentagon to prepare options for withdrawing u.s. troops. that comes from south korea's presidential office. meanwhile, north korea will reportedly allow international inspections of its nuclear facilities with the u.s.. the south korean newspaper sites intelligence sources. there could be politically explosive decisions involving brexit. according to senior british officials, the brexit transition may have to be extended for years. any newon is that customs regime will not be ready to come into force in time. the transition is scheduled to end in december 2020. the analyst that elon musk accused of asking boring, bonehead questions during tesla's earnings call is now having his day. now more anxious about the electric carmaker. >> is unusual certainly.

disappointedn be or disturbed by questions or don't appreciate multi-park questions, but i think the level of outright dismissiveness was unusual. taylor: elon musk tweeting this morning the dry questions were not asked by investors but rather two analysts trying to justify their short thesis. global news 20 for hours a day 2700n twitter powered by journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom: taylor riggs is always down in flames. she missed an important international and european story. this occurred last night in london. darkening the door, the italian embassy in london in honor. francine lacqua knighted at the

italian embassy in london. francine: and i did not even -- mess up. tom: all this up bloomberg say francineation to lacqua. francine: i'm going to tear up. i'm speechless. yesterday, but i think all the team because we do a wonderful job. tom, i wish you were here. next time we go to rome and we have gucci and italian food. tom: we could do that, but it's wonderful to see you in the order of the stella artois. we are glad that you did. congratulations from all of us. data check right now -- what are they talking about? futures negative two. dow futures soft as well with the euro under 1.20. which seriously

shows the dynamics in emerging markets with the turkisg lira -- the turkish lira extraordinary. we are thrilled that jones will help us out with professor feldstein as well. francine: choking up. no, i'm kidding. stocks are little bit mixed and the focus is on trade talks and the jobs number as well. getting a little bit of breaking news actually for one stock in hong kong. when novo will be removed from the hong kong hang seng index. that is because of valuation going down. what else i'm looking at overall is financials falling after some disappointing earnings from bnp paribas and hsbc. if you look at treasury yields, they are steady with core european bonds. without a doubt, it's all about trade. investors are looking at jobs and trade. the u.s. has demanded that china

narrow its trade surplus by $200 billion by the end of 2020, reducing the odds of a deal in beijing. this as two days of trade talks and with few signs of progress. for the very latest, we are joined by bloomberg's chief content officer. martinmarty schenker and feldstein's joining us. we have all angles covered, but marty, let me start off with you and the politics of this. for presidentseen trump and the trump and ministration as a win. ? he can send new to the china and it is a small win, but does he want something substantial? marty: he definitely wants something substantial. this $200 billion production would be half of the current deficit. it is not something accomplished in two days or not something even accomplished in two years. donald definitely wants a win

against china and he wants to be able to tout it during the campaign leading up to the 2018 and the potential reelection bid. this is something he is pretty serious about and he is trying to keep the personal relationship positive while being very tough on trade. , if the: marty schenker u.s. focused more on intellectual property or more on the financial services, would that be enough? onty: it might be dependent what other things surround those agreements. don't forget the chinese have backgroundhat in the that they were willing to open up their financial markets. that's an easy thing for them. the top of things are tech. tech is the gorilla in the room and that is going to be a difficult thing to get past if they want a major win. francine: when you look at the biggest hurdles in the future,

let me start with you and the be --the chinese remedy i'm nimby is on a watchlist. if you look at the renminbi, it has not done what the treasury has suggested it has or am i wrong? >> it has been a strong against the basket of currencies of the chinese actually look at when they consider this valuation. one of the reasons for that may be that the chinese have been trying to avoid politicizing the renminbis while these talks are ongoing. the reality is that the dollar continues strengthening in global markets against the euro, over time the pressure will rise on the renminbi to fall against the dollar as well, which would be interesting given the targets being put out there in terms of u.s. aspirations for the trade deficit. tom: one murder look on trade and then i want to turn to the events in washington. professor feldstein, we are thrilled to have you and we want

to speak to you about our new trillion dollar deficit. you remember nixon's-kissinger. whether you were republican or democrat, you and i remember shanghai scheck going across the floor of congress and the tension of red china and it was a multi lateral wall. is this a mercantile administration advancing a mercantile policies? martin: i think the $200 billion number is easy to explain to the american public. we have a deficit cut in half. tom: could you explain it to china? singapore says nowhere. to the chinese understand mercantile america? thatn: they understand they could buy us off if they needle by $200 billion, but that's not the

really serious problem. the serious problem is technology transfer. tom: right now, marty schenker with the news of the week. what is so important here is i don't think anybody understands the presidents weekend. what does he do this weekend? is he sitting mr. giuliani down and chastising him? is he going to get the resignation of his new attorney? what does the president do this weekend with the damage of his washington week? marty: i don't know that donald trump considers what happened yesterday damage or this week. there are reports that giuliani and trump basically cooked up this whole scenario involving stormy daniels and the payment, but this is something they orchestrated, and that they did not tell anybody else. sarah sanders at the briefing yesterday said the first she learned about this payment was -- tom: it's not a legal team, but a public relations campaign by the president and his good advisor. marty: to a certain extent its

public relations, but it's a legal strategy. is ironic that rudy is castigating the fbi when he is famous for having dragged financial types off the trading floor in handcuffs although the charges were dropped. tom: it has been wonderful to see on the new website, but what will be your study over the weekend to what i would suggest is only is our sunday talk shows? marty: i think this whole notion of being aggressive with mueller and the u.s. attorney in new york is something that resonates with him. it fits in with giuliani style. watch donald trump's twitter feed because it will be aggressive. tom: congratulations on bloomberg.com. marty: it's been an interesting first 48 hours. tom: you did mention that it's driven by "bloomberg surveillance." that half an hour speed

by like 10 minutes. you reach that pay well pretty quickly. tom: marty schenker, salesman for bloomberg.com, with us. we will continue with martin feldstein on the devaluations we are seeing in real-time in turkey and argentina as well. later today, a conversation with william dudley. is the new york federal reserve system present. -- he is the new york federal reserve system president. it is job stay with martin feldstein. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get the bloomberg business flash.

norwegian air shuttle has rejected to take over proposals from the parent of british airways. norwegian says the iag offer undervalues the company. iag says it's considering what to do next. the top market watchdogs in the u.s. are investigating the so-called fear index. according to people familiar with the matter, they are looking into allegations that the cboe global markets widely used vix benchmarks are being manipulated. the vix monitor stock market volatility. all missed out on force quarter trading gains boosted its rivals in the u.s. and europe. the french banker posted lower than expected. their shaken up the top ranks and he has named for deputy ceo's, one of who will take over the investment bank. we spoke with him. this a very big message in diversity. the have diversity from origin,

experience, and age. is a new asset for us to deliver our new strategy. taylor: that's your bloomberg business flash. tom: taylor, thank you so much. a.m.,jobs day at 8:30 which barely gives you perspective on the numbers that come up. we will have a great team for you. kevin hassett with us later this morning. ab and we areah honored to get a larger perspective from martin feldstein of harvard university. want to bring up the chart right away. we are so honored to have you with this chart back to 1947 and the advent of modern economics. it is the unemployment rate in the time of eisenhower and then a little bit here in the roaring 1960's and the courage of feldstein and reagan and others. truly it was bipartisan to bring

us a high unemployment rate on down. 3.9% unemployment rate of 2018 anything like the eisenhower 3% unemployment rate? martin: the demographics have changed, but basically this is a very tight labor market. 3.9% is not a sustainable number. it is a measure of just how tight the labor market actually is. tom: within that is chair yellen's comment on slack. can economists like chairman powell as well manage policy for the math, which you just said is a tight labor economy, and also manage it for a behavioral or structural employment of the have-nots? martin: those are really very separate issues. unemployment of the have-nots and the structural employment problems reflect labor market rules and transfer

policy rules and the fed cannot really change that. i think they are moving in a direction of higher inflation and higher interest rates in the longer term. francine: when you look at the fed and the u.s., do you think the phillips curve is back? will we finally see the correlation between jobs and inflation back to normal or at least a little bit back to normal? shahab: certainly that's what the market is looking for at this point in time in as much as it consistently pushes short-term u.s. rates higher and higher. it's obviously been helpful that unlike the rest of the world, u.s. data has held up strongly in the past few weeks. you are seeing that reflected obviously in the stronger dollar across the board as well. francine: what happens to the dollar from now on? shahab: today's payrolls numbers are important in that context because at this point in time, we have had some money relatively positive surprises from the u.s.

the market arguably is looking for more today, particular from the wages number. if we don't get anything special today, it could lead to starvation against major currencies like the euro. the emerging markets spaces more tricky because what you are seeing there is really the weakest parts of the financial architecture folding. their partly doing so for domestic reasons as well. that space is somewhat isolated. , are we notor seeing wage growth because of the new technology and the mystery of technology that we have right now? martin: we are beginning to see wage growth. tom: i know we are, but it's a fraction of what it used to be. the nominal spirit of wage growth is not there in society. martin: that's right. there are no unions.there's an none of that kind of pressure. this tight labor market will contribute to inflation. tom: do real rates go up if we

contribute to inflation? martin: know, the opposite. if inflation goes up, then whatever we see an interest rates is not in the real rate. it's just in the nominal rate. what we have seen over the last six months has been an increase in both the real rate and the nominal rate. tom: we will come back. martin feldstein with us this morning. coming up on "bloomberg asset -- kevin ha kevin hassett. stay with us. in london and new york, this is bloomberg. ♪

francine: let's talk about banks and the new chief executive says prioritizing is a big challenge with cost cuts. john flynn said in an interview that "i'm drinking from a proverbial firehose." this is when he was asked about the first few months at the job. hsbc's financial director acknowledged some of the banks struggles. >> it's probably speaking in line with the pattern of what we have done in the last couple of years. there have been a couple expecting a little bit more, but from our capital management perspective, what the numbers in the first quarter bear out. francine: he is the senior intelligence analyst covering european banks. what does hsbc now need to do?

jonathan: the first thing they need to do is give better guidance. they told us that there will be a strategy update before the q2 results. markets go from being overly optimistic about operating growth and cost growth. they talk about a 1-2% outperforming and now we have had a fairly slow expenses that has confused the market. there was a a lot of questions about expenses. they did admit the cost to achieve growth and improvement to r.o.e. is a higher expense ratio. there's still a bit of a 10 and we need a better guns for that. -- better guidance for that. francine: will they do that? how difficult will it be for the chief executive? we were talking about french banks. is that the disappointment of the day? jonathan: for hsbc, the trick is going to be revenue growth. if they manage to do what they have done this quarter and

margins are less and the four basis points we saw of the next three quarters and revenue growth continues at or above consensus, the market will begin to look through the fact that they are not quite what they want. for the french, it's a very different capital base. france has been a horrible place to do mortgage and retail business. their competitors have had pretty good colleagues in equity trade results. francine: jonathan, thanks so much. there is a new bloomberg.com. we have relaunched the website as most of you have probably seen with the hopes of exciting new features and a lot more opinion pieces. check it out. this is bloomberg. ♪

tom: bloomberg "surveillance," jobs day. right now we are going to digress as we look at plunging, weakening turkish lira and

argentinian peso. martin feldstein of harvard toversity, i want to go back the linkages of the global world. a man at m.i.t. came up with the idea of the butterfly effect. the butterflies flapping and way far away there is an immediate effect. do you believe the u.s. has higher rates, the butterflies have an effect? martin: that is not at all what is happening in bonus areas. -- buenos aires. they miss their inflation target, so with inflation rising faster than the central bank had said they would achieve, the markets have done just what you would expect. they have pushed the exchanged rate -- the exchange rate down

and forced the central bank to push up the interest rate. tom: there has got to be an action if the u.s. unilaterally chooses a path of higher rates. small: it is such a consideration relative to what is going on within argentina that i do not think the byterfly, it gets swamped the domestic economic conditions of argentina. , thishahab jalinoos weekend at the bronx zoo looking at the butterflies. will there be more turkeys and argentina's if we have a trajectory of higher rates in the united states? shahab: part of the problem is the market realizes these economies are very leveraged. even in argentina's case, there has been a great deal of dollar borrowing on the international markets which has underpinned the idea of an economic reform which as professor

feldstein says, if you do not reach target, you are going to have an issue. at the end of the day, if the market knows you have borrowed lots of dollars and you need to roll these over at some point in time, a problem or via -- revolves -- evolves. francine: how much value are there in some of these currencies linked to emerging markets? i do not know if that is an artificial intelligence story or a structural reform/fed story. shahab: what you are seeing in turkey and argentina is really two things. first, missing inflation targets. secondly, you are seeing that with this global rise in yields -- i should really say u.s. rise in yields at this point in time, the market is questioning whether the low volatility world will allow these kinds of economies to develop the frameworks they have with lots of leverage, whether that is sustainable in the medium to

long-term. that is the issue at the moment. the only real reprieve from an international perspective will come if u.s. data softens and u.s. inflation expectations come off. that is not looking likely. francine: do you look at carry trades? i do not know if it is against the egyptian currency or, is there a way to play the markets with not the trade pairs that would provide good value? shahab: what you are seeing right now is a move lower in some of the cross yen effect pairs. this training dollar is falling next to the yen as well. these are not dollar pairs, non-emerging-market pairs that seem to be the beginning of the longer-term trend lower. at hardly reflects the global growth slowdown the market is trying to price in. expectation is something we should be looking at. tom: we have a presidential

tweet and martin feldstein onset. we are going to show you a chart. this is a chart everyone is talking about economics, somewhat of a relationship of claims to the employed. we have never seen state claims as low as compared to employed as we have seen, way out over two or three standard deviations. the president of the united states agrees with that chart, that it is an extraordinary statement. why the job angst in america if we have got a president taking a victory lap on a chart that shows the best employment we have ever had? martin: because not everybody is sharing in it. unemployment,low super low unemployment insurance claims, but there are people having a hard time finding jobs because they do not have the skills, they do not have the health to do the jobs.

tom: in the traditional publiccan party policies, to advocate for those people as the democrats clearly what, or is the answer only trillion dollar deficits, the guns and butter approach i know you do not agree with? martin: it cannot be done by monetary policy or fiscal policy. tom: then how? martin: these are problems of people who are not attached to the labor force. these are people taking drugs. these are people who are marginal to the economy. that cannot be dealt with by traditional means. tom: it has got to be done by policy. how does the republican party reaffirm that policy to these people who are outside of their system? martin: we need to look at the transfer programs and see what those transfer programs are doing to households.

we have to look at the education programs. that is really a state and local thing rather than a federal thing. tom: coming up later, we will solve the social security mess with artan feldstein. -- martin feldstein. beijing, two days of trade talks have wrapped up and there is still plenty of work. china's official news agency said the two sides reach consensus on some issues, but major disagreements remain. the u.s. wants china to reduce the trade deficit like $200 billion by the end of 2020. the fbi reportedly has been monitoring the phone lines of president trump's personal lawyer. according to nbc news, agents had the ability to see who would call, although they could not listen in or record the calls. there was at least one call theeen a cohen phone and

white house. u.s. prosecutors in michigan have charged the former volkswagen ceo in the diesel emissions cheating case. role ased down from his ceo days after the scandal was revealed in 2015. hawaii, kilauea volcano has spewed lover into this guys and residential areas after days of earthquakes. authorities have ordered some neighborhoods to evacuate. one witness described the love up as a curtain of fire. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. the fallout from that rant continues. the analyst that elon musk was harshest with during the earnings call yesterday has told bloomberg that his antics were unusual. >> it was unusual, certainly.

often, ceos can be disappointed or disturbed by questions, or do not appreciate altogether questions, but i think the level of outright dismissiveness was unusual. francine: tesla shares fell 5.6%. that was the biggest drop in more than a month after the remarkable earnings call. we are joined by alex webb. you were talking about this yesterday and you are talking about it today. how bad is it for tesla and elon musk? you were comparing it to president trump, the people who liked him now love him. alex: heading into the earnings call, there was a lot of optimism from the bears saying he will prove all the shorts long, and he was doing that until he launches on this tirade and the stock takes a pounding. heading into the next quarter is

the most important because that will show they are starting to deliver the cars, they help, leading to cash flow in the third and fourth quarters. they have never met any of their delivery goals, so it is a huge misstatement on his part. francine: people pull out money, does it mean he has to raise more money? alex: the analysts come out with their buy and sell ratings based on the models they put together. i am sure you have been on any number of fairly interminable earnings calls, and sometimes the journalists ask really granular things, and that feeds into their models and they can build their price targets off the back of it. that is what he refused to answer. they cannot build those models. tom: alex, i would point out the gentleman mr. musk went after is an electrical engineer from brown, a baker scholar from harvard and has enjoyed 20 years

in the seat, and arguably the most prestigious research firm on wall street. he went after the wrong guy. with all this tirade, does it ability to. musk's affect a bond or equity offering? alex: yes. if you have seen the way that not only the spock had performed, but also the amount of money that cost him to borrow, -- the stock had performed, but also the money that had cost him to borrow, things are going wrong for tesla. i am sure there are people who will give him money but will ask for a hell of a premium. tom: why can they not build cars better? if we were to parachute into wherever the factory is, what is the why of the struggle? alex: i was at the tesla plant about seven months ago in california. i was chatting with some suppliers. one of them was telling me that

in the big work with the bmw's and mercedes and volkswagens, and the guys running those companies are experienced engineers and managers. ofla, they said, was a lot people in their mid-20's who do not have a lot of experience. that leads to out-of-the-box thinking but creates huge risks from lack of experience. tom: greatly appreciate this coverage on tesla today. suissejalinoos of credit and professor feldstein of harvard as well. bloomberg "daybreak is quote on radio, bob moon and chair of moscow. this -- jared moscow. this is bloomberg. ♪

taylor: this is bloomberg "surveillance." i am taylor riggs. facebook has been doing research to see of there is a market for an ad free version of this social network 84 by subscription -- paid for by subscription. there is internal momentum to pursue it because of facebook's recent data privacy scandal. bmw increased profits from automaking in the first quarter. the world's second-largest luxury carmaker said returns on sales were up even though a stronger euro. bmw is in the midst of a record rollout of new and refreshed models. it is a reversal at xerox. the settlement it announced with activist investor carl icon and has expired and

leaves xerox's existing board in place and adds uncertainty to a takeover by fujifilm. that is your bloomberg business flash. francine: thank you so much. the brexit transition period will need to be extended potentially for years, according to senior british officials who think any new customs union will not be ready in time. shahab jalinoos and martyn feldstein are still with us. let me ask your views on pound. we find out exactly what the government wants for this customs union, or does it move on boe next week? shahab: in the immediate term, the boe next week is the biggest issue. we have seen tremendous movement and expectations -- in expectations.

we went from a point of pricing in to giving up on it entirely. what the market will be looking for is some sense on how much they feel the jet -- the slowdowns have had in the u k economy materially impacts the longer-term rate outlook. if they have turned more dovish than what the market is pricing in, the pound could suffer irrespective of what happens in the customs union negotiations. , can markdo you think carney hike if he wanted to? if he doesn't, is it because he talked the market price so down, or is it really on what the economy and data is doing? shahab: really it is about the economy. if you think about the inflation report, at that point in time, the beer we was on fairly robust growth -- boe was on fairly

robust growth. is ayou have seen instead much weaker outcome from europe. that gives the bank of england room to pause. tom: going into the summer, did we see the dollar surge? martin: back then? tom: back then, did we see it coming? martin: in a sense, we did. we saw the dollar was already beginning to correct. a very smart guy saw that the dollar was weakening and did not want that to be, the market is giving the u.s. a bad grade, so he took the initiative and said, we will make the dollar come down. that is what happened. tom: interesting. much, particularly for the wisdom on emerging markets. it is jobs day. we will move forward the conversation. carl riccadonna will join with

professor feldstein. let me tell you about g tv . i'm going to bring it up, there it is, it is gorgeous. where else will you get long argentinian peso? if you are at credit suisse and you need coffee with shahab jalinoos, you need to dazzle his rod and cones and you will do it with tv . this is bloomberg. ♪

"surveillance." jobs day at 8:30 this morning. single best chart with martin feldstein of harvard university. joining us as well, carl riccadonna to look at the record on a chart. cadonna chart. really, the great miracle that we see now, eisenhower and in the miracle of reagan and feldstein, single-handedly driving unemployment down. this is the same as it was back then? carl: i think is a little bit different because of the neutral

level of unemployment i suggest -- i suspect has drifted materially lower, which means we can run a high-pressure economy we a longer period before see the trade-off in wage inflation and consumer prices. tom: you have too many plug-ins in the neutral unemployment rate. do we really know the neutral employment -- unemployment rate or is it bogus math? carl: it sure is under 4%, so we are in the danger zone. the fed is behind the curve and should have started raising interest rates early tom: do we know -- do we need to go to arthur burns like rate increases and get away from the greenspan measured quarter-point? do we need to get the job done like burns years ago? carl: i do not think we can do that. they should have started raising

interest rates years ago. long, theyed too cannot suddenly say, instead of going up 1% a year we will go up 2% a year. tom: i just like a 38's lift -- 3/8's lift to keep everybody employed. francine: they must then increase them more than expected if they are behind the curve, and as soon as the fed realizes, and whether they worry or not about the next downturn, you would expect them to beware, interest rates, in two years? comes inthe down turn the next year or two years, the fed is in a bad position because they will not be able to lower the interest rates to reverse the downturn. that is the worry. we have had a decade of super interest rates that have pushed asset prices to unsustainable levels. when they come down, it will

pull the economy down, and the fed is not in a position to reverse it. tom: we are going to go from 40,000 feet. carl riccadonna flying over the trees, what am i looking at for wage growth? carl: we have two main focuses. one is we have to make sure the march hiring lull was just an idiosyncratic anomaly and not a more sustained pullback in hiring. ,e revert back to the trend which is 200,000 or little bit more. the other focus is going to be on wage pressures. the consensus is not looking for an acceleration this time around , holding steady at 2.7% on year on your terms. the bigger picture is we are seeing the employment cost index moving higher. we are seeing unit labor costs trending sideways to hire, so it is slowly arriving.

the fact that it has been so slow to arrive tells us the neutral unemployment rate is lower than past cycles. i agree with dr. feldstein that we are very close to that level. you know you have crossed the neutral unemployment rate when you see it in the rearview mirror, when the wage pressures and inflation pressures pick up. francine: what happens if today is a little bit slower? againif it is slower today, this reinforces the notion to the fed that there is no rush to get the higher interest rates. i have a slightly different take on what would be appropriate for interest-rate policy, because the economy has been so close to its stall speed over the last several years. my concern is that if the fed had gone faster and more aggressively, we would have pushed into that stall speed and there was very little ammunition to fire at the economy. tom: what is trump economics? trump economics was a

big tax cut that will have a powerful, positive affect this year. trump economics is deregulation and that is having a positive effect. is super largeit fiscal deficits and a debt to gdp ratio heading to 100%. tom: i need to get from you an entire hour where we can talk on fiscal deficits. it is that important with these chronic trillion dollar deficits. martin feldstein and shahada gel a news, and carla -- shahada gel a new's, and carl riccadonna as well. it is a different francine lacqua. ♪

♪ alix: the magic number.

the u.s. wants china to reduce its trade deficit by $200 billion at the end of 2020. bank bashing. bnp and socgen miss out, while hsbc opts for organic growth over buybacks. april's payroll numbers set to shake off marches weakness. coming to a are beautiful shot of the capital and washington, d.c., welcome to bloomberg "daybreak." it is jobs day and equity traders should not be looking at washington, they should be looking at churchill downs. just before i came on set, in the last 10 years equity markets have only been down one time after the kentucky derby. only one time. not up a lot, but up. urth be withe fo you.