♪ francine: narrowing the spread. the u.s. it yield curve is the flattest since august of 2007. we have recent unexpected innovation, dutch inflation, but an unexpected bond auction. president trump and kim jong-un will be meeting in singapore. the ecb president speaks in florence this afternoon. give -- about winding down stimulus? ♪ and morning, everyone "bloomberg surveillance." welcome to gush welcome to

"bloomberg surveillance." i'm francine lacqua here in our london headquarters. ,ver in asia we did see gains as investors look at the inflation data in the u.s., which was higher than expected. they are taking bets on whether the fed will hike rates more or less than what was priced in. a little bit of a move on the bloomberg dollar index. we have a great story on vladimir putin, who says he wants to buy less dollars, but ended up selling more euros. where back below that 3% level. all things fxtalk with david bloom of hsbc. get your questions in for him. he is a pretty fun chat. he is usually a pretty feisty check. that is in the next hour. later in the day we have the

u.s. health and human services secretary to discuss president trump's drug prices plan. and we also talk with gordon brown. we will be talking about brexit and the labour party. here is nejra cehic. nejra: donald trump said he will meet kim jong-un on june the 12th and singapore. he said they tried to make it a special moment for world peace. made the announcement after greeting three u.s. citizens freed by north korea. good andlationship is hopefully for all of us, for the world, hopefully something very good is going to happen. they understand it is very important for them. ,t is important for everybody so japan, south korea, china, everybody. i think it is going to be a very big success. ministerraeli prime

benjamin and yahoo! is accusing around of crossing a redline by -- benjamin and yahoo! is accusing iran of crossing a line. -- targeting -- crossing a line in the golan heights attack. oil prices could rally to $100 propeller -- narrow next year. that is according to bank of america. the bank said that brent futures are set to reach $90 and the second quarter of 2019. prices could go even higher, it said, becoming the first wall street bank suggesting a return to $100. malaysia's new prime minister said he will lead a business

friendly administration and look for ways to boost the stock market. he said he would focus on growing the economy and reducing debt. he also said much of the money missing from -- could be recovered, and those responsible must be punished. [applause] [laughter] >> [indiscernible] nejra: at&t is said to have paid donald trump's personal lawyer when $600,000 for insights asked to look into its merger into time warner inc.. that is a coursing -- according to a person familiar with the matter.

the money is more than alleged by the lawyer. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am nejra cehic, this is bloomberg. francine? francine: let's kick it off with the markets and the treasury yield curve, from five to three years flattened to the lowest level in more than a decade. where are treasuries headed and what should be the feds next move? joining us now is peter kinsella the senior fx and rates strategist at cba europe limited. is the globalk macro strategist at rbc limited. we had a little bit weaker than expected inflation figures from the u.s.

we had a pretty solid bond auction. what does it mean for the fed? guest: for the fed at the moment , they are basically saying they are going to keep going with their rate hiking cycle. that would basically say to me another two hikes this year, a possibility of two next year. certainly for the fed they will continue what they are doing at present. francine: do you agree with that, chef rick -- peter schaffrik? or could it be the beginning of turbulent times? i would go the opposite of what peter said. we have to keep in mind that at this particular time of the year there is quite a few special factors that might be driving cpi. some of these sectors might not be as strong or as weak as expected. ck might moveti a little bit.

i don't want to be sort of two critical about this figure that came out of cbi. the underlined strength -- underlined strength is still there. everything at the fed still indicates that they will have to go. we suggest that at the end of the year they will have hiked four times. as a possibility they will keep going into next year as well. francine: how does the fed deal with the flattening yield curve? let's bring up a chart. inversion of the yield curve means there is an impending economic slowdown. why would this time be any different? guest: that is certainly. the fed has said they have not disregarded it entirely, but down graded to a certain degree. that to me means that in the near term they are not going to change their world of your --

their worldview materially. we have done quite a bit of analysis on that. my colleagues have done quite a bit of analysis on that. what you can see is that even in the previous episodes, from the point when the yield curve inverted, it was always quite a considerable amount of time until the economy slows. valuef we take it at face , it does not necessarily imply we have a slowdown directly around the corner? francine: do you agree that? peter k.:

it is the absolute levels that matter here. in 2006 we had the fed get around five. we're talking about maybe the fed getting to 2.5%. companies and individuals can refinance their cells at very cheap levels -- refinance themselves at very cheap levels. francine: what does the fed do next? peter k.: i think they will continue much as they have been doing. i think we will get a minimum to hikes this year -- two hikes this year. i'm skeptical that we will get a third. if i was in the fed i would prefer to take it easy. don't do too much. francine: what is the biggest risk for the fed? is there another data point they should be looking at? as a trade tensions? or is it is making sure they are communicating to the market in a clear way? peter s.: the risk to the fed is that there economic outlook does not come to fruition. i think they have actually stick fateeir -- staked their on some degree to which is coming back.

if they do not come back it will be difficult to see cpi going up significantly. there are quite a few in the that -- few indications wages will be going up. if that does not come to fruition than we might have a problem. the second thing that we have to bear in mind is that one of the other arguments that the fed is always making is one of the financial stability. they have another incentive at least in the near term to keep going. even if in the short-term the inflation numbers do not rise significantly. francine: what happens to dollar? i am anticipating that the euro-dollar will continue appreciating over the year. we may have a combination of slightly higher oil prices and eurozone cpi flattening.

francine: thank you so much. peter and peter. your kinsella from cba europe and peter schaffrik from rbc europe -- peter kinsella from cba europe and peter schaffrik from rbc europe stay with us. we will talk trump's meeting with kim next. ru hitssal a record -- rusal hit a record low. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." you are listening to jean-claude uber. he is expected to make an impassioned plea for the continued community of the european union. he is also talking about brexit. it will be interesting to listen to the president of the european commission again speaking at this conference and florence -- in florence. we also heard from the italian president at a different conference, talking about deadlines for the various parties and stakeholders to form a government. you can watch mario draghi's comments later. you can continue watching john juncker's comments

on the bloomberg. you can continue sending in your questions. .his is for peter s extending the ecb qe until december at a lesser rate or still at 30 billion euros? peter s.: thanks for the question. i think after september we are more likely than not to get a slow step down zero by december. i think in january we are at zero. ,f you ask me where the risk is if the data does not bounce back strongly than the risk is that the market has to push this slightly out into q1 2019. with indication than for the

implied rate hikes as well. i think that is the base case, that the markets should be done to zero by then. francine: we will of course have a whole block on the euro. that is tv jargon. now let's focus on geopolitics and the markets. slumped. ron washington it turns up the heat against russia and iran, there may be a bright spot on the horizon. president trump is also meeting kim jong-un in singapore next month with hopes of setting pyeongchang on the path to denuclearization. we have the latest on the trump administration. peter schaffrik and peter kinsella are also still with us. i have a lot of questions.

what do we know about this summit between president trump and kim jong-un? >> it appears for once he seems to have listened to his advisers, who were urging him to choose singapore as the venue. he wanted to have and demilitarized zone. they were urging him not to do that. they said that politically the optics of that might not look great. singapore is the more neutral territory, security is much better, and that was a better venue for a number of reasons. they have a month basically to manage expectations. it is pretty clear that they do not want to agree -- they want to make a move to give up his nuclear program before they start lifting sanctions. francine: talking sanctions, there may be fresh sanctions on iran. we also following the sanctions on -- and what that means for the company. >> what you have got is a lot

for the u.s. state department to manage at this point with all of these sanctions moves. new sanctions, additional sanctions on russia, perhaps imposing sanctions on iran at a time when european allies are opposed to that. you had germany making overtures to russia, urging russia to stay in the iran nuclear deal. i think a given the state of the u.s. state department, which is understaffed and demoralized, and there has been upheaval with rex tillerson leaving and mike will coming in, a lot for them to manage. francine: talking about upheaval, rudy giuliani abruptly resigned from his law from yesterday. >> right. there is always something dramatic happening with rudy giuliani. it is to be. over comments. his official reason for

resigning is that his work for trump is taking longer and is more consuming than he thought. however, his law firm was very critical of comments that he the saying that nondisclosure agreements that trump's lawyer made with this porn actress, that these were standard, that he would have done something similar. his law office took issue with that, and said that was not standard, that is not helpful that operate. it is clear that they were seeking to distance themselves from rudy giuliani on that. francine: when will the markets take notice? it seems the markets ignored it. is it rightly that they ignore it? do they not know how to president? -- price it in?

what is going on? >> geopolitics is not something that you can price well. it seems like markets might spike in little bit, and then the effects dissipate quickly. it is not something the markets get worried about until we see more concrete actions. a perfect example would be looking at the china story. it is going to be a marginal effect on chinese or u.s. growth with the tariffs. francine: thank you so much stephanie, or senior writer, peter consummate, and peter schaffrik -- peter kinsella and peter schaffrik. this is bloomberg. ♪

♪ this is francine: "bloomberg surveillance." steinhoff has extended a four-day slump. it warned that its accounting troubles were actually worse than feared. the south african retailer said impairments would be higher than the 6 billion euros reported in december. next week steinhoff faces a make or break a meeting with lenders about how it plans to restructure at least 10.4 million euros of debt. first of all, where does this

leave investors? the past five months has been such a roller coaster for investors. i think there is an element where they see a steinhoff announcement and their hearts are struck, because it seldom brings good news. equally, they also want answers. i think that there must be a way that they -- risk at this stage. that theirts agree efforts will be --. what will be key for investors is going to be this meeting next week held in london. it will be a week today. francine: is there talk about steinhoff reclaiming some of the bonuses that were previously paid to senior executives? and what is the implication of that?

>> i think that actually has brought some cheer. were they to recoup those bonuses, it won't even come close to solving the any of the problems really. it does show that they are serious about bringing anyone who was involved to book. it does give investors a bit of cheer that it is not all going to be just eaten up in this fiasco. francine: thank you so much. that is bloomberg's retail reporter in johannesburg. up next we talk about malaysia, brexit, the euro, as mario draghi speaks leader. this is bloomberg. ♪

♪ francine: economics, finance, politics, this is "bloomberg surveillance." a has begun in malaysia, where a new prime minister has been sworn in.

he said he will focus on growing the economy and reducing debt. he says malaysia's king is willing to pardon jailed politicians. the guitar reporter, who has been covering -- let's get to our reporter, who has been covering this. do we have any economic policies taking shape? do we know what the government wants to do? >> when it comes to the specificities of what the policies might be for the newly minted malaysian government, we ,re still light on details especially considering that they plan to scrap that unpopular goods and services tax that was 15.sed in the 15 -- 2015.e -- sav there is a crackdown on corruption, which is a key focus of the administration.

he criticized the attorney general. he said they will focus on recovering hundreds of millions of dollars that were siphoned off to the state investment firm. we're still waiting to hear what the lineup for the cabinet might look like. he said he plans to announce the heads of 10 ministries this saturday, including defense and finance. also bear in mind that part of the agreement was for him to serve as the interim prime minister until the de facto leader of the party's release from jail. he is due to be released on june 8, but the king said he is willing to immediately pardon him. there is still a long road ahead. once he is released and pardoned, he will need to stand for a election in order to secure a parliamentary seat. the waiting game continues.

it also continues when it comes to details of the policy plans under the new administration. back to you. francine: thank you so much. let's get to a little bit of breaking news out of hong kong. first-quarter gdp expanded much more than a economist expected -- economist expected. in founding -- family france's has -- france's -- has ended a feud. acquired all outstanding shares, becoming a shareholder of sika through the purchase. joining us now is the chief financial officer of saint-

gobain. this took a lot of analysts by surprise. you ended the deadlock. what were the main reasons for this? >> good morning. we have taken advantage of a unique opportunity to complete a allsaction that an end to uncertainties when it came to sika. at a loud us to deliver really good financial results, remove all uncertainty, and freed us to pursue our financial goals. a financial result that is going to be in excess of 600 million euros. .rancine: i am not going to light this is a pretty complicated, -- i am not going to lie. this is a pretty complicated deal. >> we're pretty satisfied with

being the biggest shareholder of sika. the outcome of the deal is allowing gus on one hand to get 600 million euros and on the other hand to become the largest shareholder of sika. it is something we're very comfortable with. by contract this investment is at least two years. at this stage we have not made any decision on whether it could be longer-term or it would stop there. it really is going to depend on how sika is performing. we are going to be, in our mind, a longtime shareholder. francine: how do you compete? this is also a competitor. us -- agreement between according to the antitrust regulations in europe, we had to go to the european commission.

they decided we were competing on a very small area. we're not really competitors, we are very much complementry. this was the reason for us being very interested in the collaboration with sika. of ourto the resolution conflict, we are going to be in a much more cooperative mode. we will be able to put business actions together which hopefully value for both companies. and is not going to be an issue. it is not really a competition, but it complementary -- complementary --. francine: can you use this gain to buy another company? >> we have since the last three years, we have continued to do m&a. we will obviously accelerate ,his activity, in terms of m&a

mostly in terms of small and midsize acquisitions. new technologies, emerging markets, and consolidation of all strong positions. we will continue to do that. we see the continuity of what we have been doing for the last few years. francine: were you be interested or c as a priority growing your u.s. construction-chemicals business? >> i think construction-chemicals is an area of interest for us, certainly. we have already done an acquisition in the last two years and will continue to do that. we will continue to do that in all areas, including the u.s. there is no specific target to mention today. francine: thank you so much for making the time to speak with us today. saint-gobain chief

financial officer. mario draghi is in italy today for the annual state of the union conference. cker is speaking now. what does the market actually want to hear from mario draghi? peter kinsella and peter schaffrik are still with us. this is a great viewer question. thank you so much for answering it. overall, what is the main problem that the europeans have right now? draghi, are you more worried about your successor then you are about scaling back on purchases -- bond purchases? >> mario draghi that -- has said that he is not worried about his successor by now. i think the main problem that the ecb has is one it not too dissimilar -- too from what the bank of england

has. dip westion is, is the seeing the data just a dip? or is it something more sinister that is coming through? we definitely believe it is temporary, whether related -- weather related. if that is not happening, i think he has a problem at his hands. francine: do you agree? peter k.: i do. it seems to be a soft patch. the rest of the world seems to have been dutch have done pretty ok in q1. i think mario draghi will emphasize saying that they are back to growth, basically saying we're still on track for cutie at the end of the year. qe at the end of the

year. that --.no reason francine: where is the euro? similar levels? peter s.: the one thing i slightly disagree with. i believe higher oil prices, in particular for europe, is a double-edged sword. -- they oil importers arenet oil importers -- we net oil importers. the ecb has continuously pointed out that they are really interested in core inflation going to. if core inflation -- going up. if core inflation were to be depressed, that is a big problem for them. i certainly think there's upside

risk to the euro as well. francine: to what kind of level? peter k.: we will have to see. we have to recoup the levels that we were before. overall, i think we can make new hikes. -- 25, ito 120 part would not be surprised -- once i would not be surprised. rangene: is it broadly in still thanks to ecb? >> no question. we have two completely antiestablishment parties potentially coming together to form a coalition. that is purely a reflection of where the ecb is. continuing with qe, but more

partly continuing on that reinvestment in finance over the last few years. the italians have been quite clear. worryne: you could also even if these parties implement 20% or 30% of what they promised, it is giving money back, it is things that would not be good for the kind of -- for the coffers in the treasury. is it sustainable? guest: we will have to see. if i may make one point on the spread. i think one of the reasons why this spreads so far have not moved that much is because if we go back 12 months, if this came up months ago, i have absolutely no doubt the spreads would be 200 plus already. back then this is the bogeyman scenario that you could possibly paint.

key point why the spreads currently only move in a relatively small fashion is because the key policies vis-a-vis's the euro, and therefore for the underlined fundamental foundations for the system seemed to have changed. i want to stress of the seem. one year ago the market would have been convinced if these guys came in to work, a referendum on the euro right -- euro membership would be imminent. francine: constitutionally you cannot have a referendum, right? what has changed in investors minds? i want to bring you to spread on the italian and spanish yields. >> we made the argument back in the day that it is very difficult to have a referendum and all those types of things. political will,

typically there is a political way. i want to say it again. in my mind, the most important thing that is currently keeping y is theat bat perception that these guys have mellowed quite considerably. francine: thank you so much. you kinsella from cba europe and peter schaffrik from rbc europe stay with us. minister prince brexit legislation on a hold. this is bloomberg. ♪

♪ francine: good morning, everyone. "bloomberg surveillance." this is -- this is "bloomberg surveillance." progress in london seems to have coming -- to becoming to a standstill. theresa may canceled her meeting with her cabinet members and a future meeting is uncertain. can theresa may get away with avoiding the big decisions? peter kinsella from cpa europe and peter schaffrik from rbc europe are still with us. we don't know what kind of customs union they really want.

there is nothing clear about what they would do with irish border. is it better to push off in the distance or is this a terrible strategy? guest: it seems by looking at events as they develop, there does not seem to be sort of a broad strategy around this. off,ong they can pull it what the europeans have said a deadline for the irish border. they need to get their act together and come up with a viable solution. francine: who is deciding? is it theresa may? at the end of the day who dechellis into -- who does she listen to? guest: she is trying to basically placate both sides. where that will come to these of these the irish border -- these of these the irish border -- -vis the irish border --.

we will see what the next iteration of this looks like. it basically seems we are out of the customs union, are kind of going to get hp to deal. francine: does it mean we get a second referendum? does it mean we get early elections? if you are a market investor, do you plan for the worst kind of scenario? guest: i think this is the kick in for a market some like me. if i look at the market currently, you have seen is so far the u.k. economy is not great, but is not falling off a cliff either. is there potentially a cliff as we get closer to the deadline? i doubt it. we still need some kind of a formal thing that we can get through parliament and ratify. the trouble for theresa may is

that she potential he has -- for something like that, she has eventually the majority of parliament. she might not be the seat in her own party anymore. that is the dilemma she is facing. any of thisbt that stuff is going to derail the british economy. i think that is the key thing for investors. i think as long as you are buying u.k. stocks, or as long you are buying u.k. government stocks, you're going to be fine. francine: is there a danger that the market is pricing in a fudge of brexit altogether? guest: i think the french -- budget that they are -- fudge that they are pricing, it is not too bad. we're certainly not pricing a

severe downside. if you're asking me, as the fudge been priced to some degree? that is a good scenario. guest: that is the best outcome can get at the moment. i'm not sure that markets are placing it properly -- pricing it properly. if theresa may is replaced, that is definitely a heartbreak scenario. imagine we go for another general election or even the prospect of a labor government. i think markets and investors are very complacent with u.k. assets at the moment. francine: thank you so much for coming gone. peter kinsella, senior fx and rates strategist at cba europe, and peter schaffrik from rbc europe limited. nejra: the owner of the uk's

daily mail has sold the company behind the property website. they have agreed to about 2.2 billion pounds. -- has relied on cost cuts and lower debt provision to swing profits. the lender posted a profit of 188 million euros in the first quarter compared with 169 million euros loss one year earlier. that the the analysts -- that beat the analyst estimates. a bitter three-way feud that has reached for years has been ended. sika bought almost 7% of its self from swh. that is the bloomberg business

flash. francine? francine: let's talk tech. than 3000 russian backed facebook advertisements have been made public for the first time by democrats on the house intelligence committee. it sheds on new techniques that russia used to create discourse leading up to the 2016 potential elections. afteripmaker fell predicting --. let's bring in our tech team. we have coverage from all sides. on.k you so much for coming talk to me about cryptocurrency. have big a deal is this? >> it is a quarter. it is one signal. i don't know that it is that big a deal. i don't know that it is going to move the market in any significant way. we have had this tug-of-war between the bulls and the bears

for the last three or four months. this will be a day that perhaps the bears jump on that and write on that for a little while. we have seen the bitcoin trading in this band now from high eights to mid nines. it does not seem to be breaking out of that. francine: does the crypto market deal less volatile desk feel less volatile? >> i think it does. you have the mainstreaming affect. people are getting used to it. we have the advent of futures. i think that shorting effect is starting to 11 the moves here -- leven the moves here. francine: if you look at facebook, i think yesterday there was a nice headline saying that share price rose before the cambridge analytic it scandal -- scandal. analytica

>> every single time that somebody blames facebook for swing the election, they are anorsing the -- facebook as advertisement platform. they are getting more ad revenue and investors are following suit. francine: can they leverage on this? are they attracting more non-country advertisements? tothey are publicly trying -- making their appearance, doing as much as they possibly can from preventing this -- to prevent this from happening again. g u.s. political advertisers going forward. they are clearly some loopholes there.

it seems they are doing as much as they can. francine: going back to cryptocurrency. i follow facebook more than crypto. we were talking about source of energy, and if some of that source of energy could move to china. what is the next big thing you are watching out for in crypto? >> the next big move think is going to be custody. the custody issue. i think there is loads of investors that are really anxious to get into this. the news that goldman sachs is opening a crypto trading desk is huge. this is really mainstreaming. can you guarantee the custody for all of those investors so that it is not able to be hacked , i can extract to bitcoin, i can convert to fiat currency when i need to. can you make this process seamless? i think that is going to be a killer proposition that you're

going to need to see for this to mainstream. they are going to need that. francine: i love this. thank you so much. what hp to have you guys. , bloomberg next week displays to boston to diversity, and coverage begins on monday. we will be talking quite a lot about treasuries and the flattening yield curve. this is bloomberg. ♪

francine: the u.s. yield curve is the flattest since 2007.

weaker than expected inflation. president trump's historic meeting with kim jong-un will take place in singapore. can they really reach a deal? mario draghi speaks in florence this afternoon. good morning. this is "bloomberg surveillance." i am francine lacqua in london. julia chatterley is in for tom keene. we take a look at treasuries and the possibility of a yield curve inversion and geopolitics. how differenting things can be after a month and a half in terms of the interest rate curve. solid action on the 10-year and 30-year with record amounts coming into the market. sentiment is reflecting globally.

francine: the rate pressure from the fed eases. let's get to first word news. taylor: president trump will propose a sweeping effort to lower drug prices today. the plan is designed to increase competition and lower costs. it does not go as far as the president once threatened to have the government negotiate prices directly. united nations secretary-general istonio guterres says he ha confident the u.s. and north korea can reach a historic deal. he told bloomberg it is vital for north korea to get out of what he calls a straitjacket. malaysia, the new prime minister says he is willing to pardon a key opposition politician immediately.

expected to take over prime minister was he is released from jail. the country asked the imf for help, forcing the central bank to raise it to the highest in the world. be seekings said to $30 billion. 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 taylor riggs. this is bloomberg. >> let's take a look at what is going on as far as the vix volatility index. two straight sessions of gains for the s&p 500. you can ask whether it is a chicken or egg sentiment. we are trading above that 13th handle. remember in february when we

were about 35. as far as the dollar is concerned, looking at dollar mexican and dollar canada. pesorday, the mexican posting the biggest advance 2017.june of we are seeing a narrowing between the left-wing candidate and the right-wing candidate in the july election. gold benefiting from the inflationary sweet spot we are seeing as far as this one data point is concerned. because: im distracted david bloom is taking over the airwaves. he had real-time commentary on everything. he is one of our favorite -- david: you can on cross your

fingers now. francine: it is basically about inflation. the fact that they are easing inflation pressures in the markets, maybe the fed will step up the pace on monetary tightening. it is now pretty much flat. >> i have a chart that ties into what you are saying as far as risk sentiment and the s&p 500 is concerned. are we seeing a material break from the bear trap we have been in? we are seeing the downtrend since early january of this year. you can see that break above the s&p 500 above the 100 day moving average. this is not that great, but in terms of valuations, earnings multiples have fallen to the five-year average for the first time since 2012. is this sustainable? francine: i am looking at this.

treasury yield curve. the treasury yield curve from one to 30 years flattened thursday to the lowest level since 2007. it is a solid auction. we are asking ourselves whether the possible yield curve inversion is a dilemma for the fed. for even more on the flattening yield curve and the impact on the dollar and some emerging economies, let's get to our and davidvid bloom lubin. thank you so much for coming up. i know you want to talk about the dollar, but before we talk about the dollar, do you worry about the flattening yield curve? >> no. about --eally carry care about inflation. is when youabout

have money in the u.s. above 2.25%. that is beautiful. in some countries, you look at dollar denominated debt, and they are offering 50 basis points over the u.s. we have 25 million people of the richest in the world backing me up behind me. you have to ask mr. lubin here about e.m. writes and whether they are high enough. francine: he has also taken over the questions. i like that. we have viewer questions coming for mr. bloom. keep them coming. if there is a sign the yield curve is inverting, does that mean an impending economic slowdown? >> for emerging economies, sometimes it is the case that emerging-market as if prices do best.- as set prices do

the dollar weakens, and that tends to push capital toward emerging markets. we are seeing that because the dollar is strengthening that is sucking capital from e.m. one tends toat think it is u.s. interest rates that matter when it comes to pushing capital toward markets or away. it is only since the dollar has been strengthening a couple weeks ago that in assets have started to -- e.m. assets have started to weaken. we have seen u.s. rates go up while capital is eroding from the market. measure oft some u.s. monetary conditions matter,

but at the moment it happens to be the dollar that is the actual measure of u.s. monetary conditions that matters. >> how fortunate for david bloom. onr dollar call relies dollar interest rate differentials. tell us about why now interest-rate differentials matter when they have not for so long. good luck think it is in an argument for things to build up and build up and by the time you have this argument, you cannot even remember why it started. volatility went up in the equity markets substantially. you had the slowdown in europe. you had other central banks pulling away from raising rates. point rise inasis the short and. then it just happens. i wish there was some kind of smoking gun i could .2, but it

was a combination of events leading to the dollar surging ahead and the short-term money. i am less worried about yield curve and more worried about the short-term money in u.s. you can get 2.5% without duration. that is beautiful. >> how much higher do you see this going? it is not just a dollar story. there are also result currencies playing into it -- all sorts of currencies playing into it. >> the reason we don't have a full-blown bull market is 2013. the fed pulls back, the dollar goes back down. there is some kind of limit to the dollar strength. francine: david, does the president want a stronger dollar? >> no. currenthe

administration is quite clear. we had steven mnuchin speaking in one of the ski resorts saying a weak dollar is in the u.s. interest as it relates to trade. from mr. rubin. >> how sensitive are we right now if you look at the portfolio outflows we have seen? a lot of analyst saying this is a buying opportunity, a short-term move. given what we have seen in the last two to three weeks in terms of outflows in line with what we have seen with the u.s. dollar, is this an opportunity to get back in? >> it really depends on what happens to euro-dollar. euro-dollar at the moment is as important in shipping risk appetites toward emerging markets as the u.s. 10-year yield was in 2013 during the

taper tantrum. eriods where it happens to be the dollar exchange rate. sometimes it happens to be the dollar against g10 that is the relative measure of u.s. monetary conditions that shapes the market. the asian crisis in the late 1990's was provoked not by tightening u.s. monetary policy but strengthening dollar against the yen that was the proximate cause. we are in a moment where it is the dollar that matters as this gauge of the u.s. monetary conditions that shapes u.s. capitol toward e.m. continues, the pressure is likely to stay. forcine: we have questions

david bloom. they will be answered coming up. are there any trades out there that look attractive because of what the fed is doing with emerging-market currencies? >> there is a clash in which the average real interest rates in emerging markets has been declining sharply over the last 12 or 18 months. interest rates in the us have been rising. the real interest rate differential has been falling, odes the cushion that protects emerging markets. that reduces the opportunity dollars forng brazilian corporate's and fund managers and individuals. it is as if the door has opened for capital outflows.

election uncertainty is helping to push capital through tha open door. francine: coming up in the next hour, steven cook, council on foreign relations senior fellow. he will be asked about that singapore meeting on june 12 between kim jong-un and donald trump. this is bloomberg. ♪ ♪

taylor: this is "bloomberg surveillance." let's get to bloomberg business flash. almost $3 billion. cpg operates the website ziploc

websiteprice comparison you switch. over in italy, the monte paschi bank has reported an unexpected profit. they needed a government bail out last year because of billions in bad loans and derivatives deals. the owner of volvo cars has hired citigroup and morgan stanley to advise on an ipo this year. by -- andars is owned could be valued at up to $30 billion. it is said they could be listed in hong kong and sweden. donald trump is already outdone his predecessors when it northto dealing with korea. he put together global sanctions, secure the release of

three u.s. prisoners, and held a summit with kim jong-un. the real results will emerge in singapore month. for more on this, kevin cirilli. we are already moving the goalposts as far as success in this meeting is concerned. what is realistic success or the definition of it as an outcome from this meeting? kevin: president trump has said consistently that it is denuclearization. there is no question that the developments in the past 38 tensionsthe escalating between israel and iran and syria have put a new shadow over the talks of denuclearization that will be june 12 in singapore. we talk so much about the relationship between the u.s. and north korea that we have to bring china to the table because they are 90% of north korean

exports and imports. for president trump, this is a chance to show a denuclearization negotiation strategy when he is facing criticism for the iran nuclear deal. >> each president has a different definition i fear of what that means. that is kind of the problem. what is actually expected? when we look at what officials are saying, we know what they will not accept more than what they will. from: the criticism coming them across and republicans is what will president trump put on that agenda? will he go in on script and on message? that is a concern they have. this is a president who has appeared very unpredictable at times. his critics say that is a hindrance on his ability to get policy accomplished. his supporters would argue it is

an asset. specifically, what type of denuclearization deal will the seek to negotiate? will it be a timetable response or immediate response? either way, in washington the release of those three prisoners is being greeted and welcomed across party lines. francine: yesterday, rudy giuliani abruptly resigned from his law firm, which then undercut some of his recent statements. that felt quite significant. kevin: it is significant in the law firm isa incredibly conflictual inside the beltway and other upper echelon circles. i spoke with one official familiar with the former new york city mayor who said

essentially, in the political sense, times have we seen a situation where you have someone step down to do a campaign? there is that comparison being waged. it comes down to whether or not you support the former new york city mayor. francine: there is a question i have for you on some of the sanctions. i don't know whether goes back to resell that may be imposed on iran. is there chatter within the trump administration that there is risk, or do they ignore it? kevin: there is chatter if you look at what the europeans want, you hit it on the head. there is concerns from progressive leaders such as german chancellor angela merkel that they are wary of additional sanctions. that is very much at odds with

the conversation amongst progressives this year in the united states. i think the baseline political shift in the u.s. is very different from progressive circles overseas as it pertains to additional sanctions. the pressure on the administration to continue to target russia at a time when he just pulled out of the iran deal, and there is growing concern that russia and china will work together in iran with the energy sector, the pressure coming from the left and the new hawks on the right to some extent is nothing. francine: thank you. kevin cirilli is our chief washington correspondent. this has huge implications essentially. you heard from a lot of them are put in who said he wants to -- vladimir putin who says he wants to drop the dollar. it's.s. is retrenching

leader as the free world. is the dollar the reserve currency 10 years from now? allhe dollar is 85% of currencies traded. until another currency appears on this earth that offers you very tight spreads come in other words if you are buying singapore and buying the rent, you sell singapore and by the u.s. dollar and then sell the u.s. dollar and buy the rand. the u.s. dollar is the gateway. they told me the euro was going to threaten that, and now people have backed away from that story. i just don't see it. >> i would answer that the chances of the renminbi offering serious challenge as the reserve currency is seriously challenged.

there have been three metrics people have used to gauge the internationalization of the renminbi, the share of chinese traits in renminbi, the stock of shares in renminbi deposits in relative and the value to bond issuance, all those have collapsed in recent years. myncine: i want to bring up turkish lira chart. i am sure we have synthetic italian lira somewhere. this is as the outlook from the central bank remains uncertain. where does he go from here? david l.: ask david. the central gauge at the moment for risk appetite in central markets is the dollar. i think pressure could reemerge on the turkish lira. the turkish government this week has recommitted its willingness

to stabilize financial markets in turkey. the fact is turkish fundamentals are quite formidable. the savings ratio is low. is turkish government supporting a policy and at supporting domestic demand. external financing requirements remain high at a time when turkey already has a large stock of liabilities.nated as the dollar strengthens, it is work withsive to those liabilities. tothe central bank is going defy the president and raise election rates anyway on june 24. what do you expect? david b.: we just put out a

piece. at the moment, we are not doing anything with this currency because is the central bank to do a rate hike? when they did that before in 2014, it worked beautifully. get an interest rate hike that is not enough, it is sell. all the central banks in and smash the market by raising rates substantially. if they do, the turkish lira problem might be over short-term. if they don't, then it is up. it is all about with the central bank does in the next two weeks or so. >> morgan stanley with a bold call saying more than 150 basis points rate hike by june. david b.: it would have been a

brave call if they did it two weeks ago. there is massive speculation that they will. right, 150 iss not enough, we think 200 would smash the problem. it is all about the central bank now. francine: thank you so much. david and dave and. andd lubin of citigroup david bloom of hsbc. coming up on monday, we are live from paris with the central banking series. exclusiveve an interview with the active fronts . fronts governor. ♪ mom, dad, can we talk?

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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. mr. elliot, what's your wiwifi?ssword? wifi's ordinary. basic. do i look basic? nope! which is why i have xfinity xfi. it's super fast and you can control every device in the house. hey! let's basement. [ grunting ] and thanks to these xfi pods, the signal reaches down here too. so sophie, i have an xfi password. and it's "daditude". simple. easy. awesome. xfinity. the future of awesome. francine: this is "bloomberg surveillance." tom keene has the morning. nvidia has reported quarterly sales that topped estimates.

generatedchipmaker 289 million dollars in sales to cryptocurrency miners in the first quarter, that revenue fell by two thirds in the current period. extendedclined in trading. at robinson joins us. this is a lengthy read looking at that income. is this a sign cryptocurrencies will turn sour? >> i think in the big picture, no. it is a blip. it is a bearish signal for the next 90 day cycle perhaps. there is so much momentum going into all sorts of different crypto glaze. londonday an outfit in announced they will be unveiling ethereum future contracts.

news announcing they are opening -- goldman announcing they are opening a trading desk. there is a lot of momentum for chip sales to disrupt. francine: when we take out a little of the volatility, people are asking custody. >> that is a big issue. how does this scale for investors to see a move like goldman and say it is time to go in. how can you safeguard the actual tokens themselves? you already have hard balls, cold vaults, cap computers that vaults, cold- hard computers that prevent the alphanumeric key from being accessed.

>> looking specifically at nvidia, this is the first quarter they have chosen to break out what they're getting as far as crypto is concerned. that is interesting it so. when they predict revenues might fall by two thirds in the is this justd, managing expectations when they point out this is so volatile it is tough to put it anything? >> it is. that is true. ight have sales my spiked due to everything we saw in the fourth quarter of last year. everyone started piling in to mine. maybe everyone is taking a breather right now and that is what we are seeing from the chipmakers. >> thank you.

let's get you an update from bloomberg first word news with taylor riggs. taylor: eu is working to limit the impact of u.s. sanctions on european businesses working with iran. german economy minister peter meyer is ruling out a government fund to help companies for by the sanctions. the trump administration has imposed sanctions targeting and iran might currency exchange network. nine iranian citizens have been penalized. president trump is promising to unveil what he calls great health care plans in the next month. he made the announcement in indiana. he did not elaborate.

president trump is right repeatedly unsuccessfully to get congress to repeal the afford health care act. hong kong's tourism and shopping cap rebounded while -- have rebounded while housing prices are the least affordable they have ever been. 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 taylor riggs. this is bloomberg. francine: thank you so much. oil is poised for its second while concerns are sparked over tightening global supplies. $100 arude could reach barrel next year. we spoke with jeff curry, goldman sachs global head of

commodity research. >> the bullish environment is predicated on demand and where we are in the business cycle, not on geopolitical risk. there is very little evidence of a geopolitical premium in oil right now. in that sense, three imposing sanctions on iran reduces the capacity to produce. it does not do much for the full are balanced. we may lose iranian exports, but it is likely to be replaced by saudi production and other u.s. allies. david bloom of hsbc is still with us. julian, when you look at a-rating sanctions, how much effect will it have on the price of oil? the lastou look at time, 2012 to 2016, when these

sanctions were in place, we lost in the region of one million barrels per day. my view is that president trump is not going to be anymore lenient with buyers of iranian crude then president obama was. he is likely to be a lot tougher on them. i think in the fullness of time, we will-month period, see at least that volume of iranian oil lost again. francine: a lot of people say this just plays into show producers' coffers. >> we are seeing u.s. production going up week after week. we think that will continue. we don't think they will get much more boost than they were getting anyway. the price will go up a bit, but their biggest impediment at the moment is getting the oil out and to market. they need more pipelines.

as production grows, they will need even more. >> it is interesting to look at some of the urgent views we are hearing right now. you have the iranians saying 65 dollars a barrel is reasonable. you have the saudi's saying $80 a barrel. you even have accusations that the u.s. is manipulating oil prices. what is the opec response to what we are potentially going to see with iran in light of what andoing on with venezuela the impact on the market there. >> we have an interesting situation in opec these days. i lived through the era where constantlya was arguing for low prices, and iran was constantly arguing for higher prices. now, we have the two sides taking opposite stances. iran has been saying this for several months that $60 a barrel

is a good price for everybody, and it does not want to see them any higher. even without sanctions, there was very little iran could do about that. it is producing as much as it nsanctioned an u environment. we have the very seat decline in venezuela production. we have seen no appetite so far for saudi arabia or anyone else to make up for those lost venezuelan barrels. saudi arabia still does not seen the market as being balanced, although it is being very unclear these days what constitutes balance. we are in an environment where most people in opec are very happy to see the price rising. i don't think that there is much appetite at the moment to step in and add additional supply. output isink their

under any additional stress. if prices rise significantly, that calculation may change. >> we have predictions here of $80 a barrel from bank of america in terms of oil prices this summer. whether it is the winners and losers in em. price forecasts, they are even worse. thank goodness for them. it is the usual suspects. we know india gets in trouble when oil prices are high because they are an important. turkey which is already having issues does not need high oil prices. the real one is iran. if it is supply-side, iran gets hit. it is demand side, iran does not get hit as much.

it looks like it is supply-side. it is the usual suspects. that is not good for global growth. francine: tell me what it means for petro currencies. >> there are not that many because most of them are pegged. you cannot really trade them or deal them. canada.es us go for you have got nokia, a fantastic currency that you should buy regardless of the oil price. these are proxy time place. the fx market knows when to sell, but we are not sure when to buy. just buy the dollar is the mantra at the moment. you buy the dollar against those currencies that will suffer when oil price rises. francine: you are staying with us. we will get to the viewer questions on the bank of england and the ecb. up, our u.s. --

8:00 a.m. in new york. this is bloomberg. ♪ berg. ♪

francine: this is "bloomberg surveillance." juliette and francine from london and new york. tom keene has the day off. this is a great question. this viewer is asking david, could lots of the elite rate hike be one and done, and if so what does it mean for eurosterling? i think it is all over.

can you hear the screeching of reverse gears from ever central-bank? and newsweden the u.k., zealand backing away. we have seen that in the u.k. where the central bank is one and done. it is all over. sterling fell to the point where the wags were saying the great british -- it was unusual to see one of the biggest currencies in the world losing in a matter of days. this for quite a while. we think sterling is under pressure. eurosterling threatened to break that channel on the downside. if anything we have euro-dollar going to 1.15. euro-dollar is trapped in that channel to the upside. it is not breaking wanted because both the euro and

sterling will probably fall equally against the dollar. >> does carney have a credibility problem? they kind of signaled and backed off again. do we care about credibility in this case? is it just a case of all of the data and changing your mind if you have to? >> i think your letter point is right. if the facts change, i change my mind. what do you do? day,oc came out the other he looked awful. the like for like sales were awful. the housing numbers came out. everyone is arguing about the weather. apparently i have to see next month's retail sales to find out what today's weather is like. we are finished. we are sterling is weak. get over yourself. francine: i don't know how to

follow this. there is so much energy. let's continue the conversation and look at geopolitics squeezed by u.s. sanctions. the central bank has been doing just the opposite. recorduguration has a fourth term for president of russia. been onomy reporter has this story joining us from moscow. it was a lovely feature. is there anything vladimir putin can do as russia's central bank has been cutting euros? yes, russia's central bank in its international reserves has about half in u.s. dollars, and it grew last year. what she said russia needs to diversify away from the dollar, nobody expects selling of the

american dollar. what can happen is more fine-tuning in terms of the reciprocation the central bank did add canadian dollar recently, but as of now the american dollar is half. analysts perceive the russian central-bank as quite independent. maybe they will fine-tune a bit, but no one expects the share to go really low. francine: what is the central bank thinking now in russia? >> the central bank has been growing its international reserves. i know when the currency is free, it does not make much sense to have huge international reserves. for russia with all of the geopolitics, they are cornered into having this big buffer. ratingas s&p and other agencies, they attribute

russia's rating strengths to this. with oil going up, brush will continue to grow its reserves. francine: thank you so much. we will be back with david bloom of hsbc and talk about your strengths next. -- euro strengths next. coming up next week, bloomberg radio and bloombergtv has a show that will broadcast live from a different location each evening. we will show the power of the regional tech economy. that is 4:00 to 6 p.m. eastern. this is bloomberg. ♪ is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. rusol's aluminum producer says long-term prospects are uncertain. they were hit by u.s. sanctions last month that rocked the entire aluminum industry. they say any forecasts they made in the past are unreliable. j.p. morgan chase wants to take

advantage of china's latest commitment to open up financial markets. the bank has committed to opening a majority stake in chinese ventures. regulators say they will review the application. the rivalry between amazon and google is heating up in digital advertising. people familiar with the matter says amazon has stopped buying a popular type of google ad on top of google search results. losing amazon is a rare setback for google shopping ads. ahead of today's state of the union speech by mario draghi, we have a fabulous question by our guest david bloom. with the ecb likely to withdraw from qe by year end and a rate hike cycle next year, what will happen to european banks correlation in this scenario?

go for it. david: sure, there are a couple of assumptions. the one is that they will pull away this year, really? that they won't really raise rates next year. with all credit to our own economists, keep pushing and pushing, snowplowing the view of the ecb doing whatever they are going to do. the markets will keep snowplowing what they are going to do. we saw that in new zealand with the bank of england and sweden. apparently the weather causes the slowdown. there is a slowdown in europe, and everyone is pushing out their assumptions good that is why the dollar is taking steam. the u.s. economy is powering ahead. everyone else is willow bay, maybe they will? just forget about everything and by the dollar. make life simple.

go in theoes the euro backend of q2? have dollareason we powering ahead is the greenback is back. we have 1.15. you call that a forecast. at some stage, it is possible that the dollar powering ahead and some of the damage done to the rest of the world, the fed goes maybe we can just ease off a bit, and if that happens the dollar during will come to an end. we had david lubin saying that is key to his view. if it keeps powering ahead, emerging markets get into serious difficulty, and then you have a global growth problem. get your bottled water and hydrogen your desk -- hide under

your desk. hopefully it will end there. you trade?ow do >> i would not touch that currency. let's talk about if there was a downturn, they have -75 basis point rate. slowdown,as a global and the ecb was to pull away, what are they going to do? there currency could fall. when we changed our recent forecast, is still had to rise 10% from there could it has had a run lately, but they could get in to serious hot water. francine: what is the emerging market currency you need to stay away from? is there a currency market in emerging markets that you hate? >> some of the currency markets impacted by low prices and the dollar, the turkish lira we did

not like. they may do a hike. if they do that, all hats off to them. there currency could recover. you never write anything off. it was under serious pressure. most e.m.'s under pressure at the moment. i would not say choose one or the other. i think you have to be wise and not buying e.m.'s at the moment until things settle down. francine: the quote of the day, get your bottled water and hide under your desk. david bloom, not like any other guest we have here. darda of next michael mkm holdings. this is bloomberg. ♪ ♪

♪ narrowing the spread. the u.s. yield curve is the

flattest since august of 2007. we had weaker than expected inflation, but a solid bond auction. president trump's historic meeting with kim jong-un will take place on june 12 in singapore. ach a deal?ally re mario draghi speaks in florence. good morning, everybody. this is "bloomberg surveillance." we will spend some time talking about treasuries, some of the target moves -- market moves, and will talking about president trump meeting with kim jong-un. >> we will talk about>> drug -- he will talk about drug pricing as well. francine: let's get straight to the bloomberg first word news. talking about that drug pricing, president trump will propose a sweeping effort to lower drug prices today. is designed to increase

competition among drug makers and lower patient costs. governmentve the negotiate some a drug prices directly. united nations secretary-general says he is optimistic the u.s. and north korea could reach a historic nuclear deal. he gives president to president trump for pushing top sanctions that forced north korea to negotiate. he told us it is vital for north korea to get out of what he calls a straitjacket. the new prime minister of malaysia says that the kingdom is willing to pardon -- the king is willing to do pardon a jailed immediately. on international monetary fund chief wants a quick resolution to credit line talks with argentina. the country asked the imf for help after a rout in the peso

forced the central bank to raise interest rates to the highest in world -- the world. argentina is said to be seeking --. 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, julia? francine: let me give you a quick look at the data. we saw gains for the u.s. equity markets yesterday. the vix volatility index pulling back now just above that -- below the 13 level. we are awaiting some announcement on nafta. we saw the biggest rally in the mexican peso since 2017. a narrowing of opinion polls ahead of the election. irst heading for the f weekly gain in four. this seems to have

moved some of the pressure that the fed was may be stepping up the pace of monetary policy, tightening. the dollar steady. oil is steady. we are trying to figure exactly what teresa ms. next move is -- theresa may's next move is. >> let me show you this chart. breaking above the 100 day moving average. we see more than 5% gains for some of the big cyclicals. financials asking if this is a sign of breaking out of that bear trap we have been stuck in. francine: this is what i am looking at. i was a little bit distracted, so i am doing it now. i have kept it on my mind for the last few weeks. you can see the yield curve is now flattered. this is huge. this is something that we need to keep an eye on. if you see on inverted yield curve, then it will make a huge

difference to what we see next. i think we are getting some breaking news. i am trying to see them. we are trying to figure out exactly what it is. regulatoryually the here in the u k and the pra. jes staley over 600,000 pounds. this is the first time i have seen it. a sitting chief executive of one of the biggest banks in the ned overw being fi 600,000 pounds. we will talk about that. back to the markets. this is what i am looking at, the flattening yield curve. the spread between the five and

30 year yield curve continue to flatten that continues to flatten. -- continues to flatten. do you worry that a flattening yield curve will actually end up in averting? does that mean hecate topic -- economic catastrophe? >> one of my favorite topics. the flattening yield curve is not a threat at this point. it is not uncommon to see a yield curve flat in later in the economic -- flatten later in an economic cycle. it is actually quite normal behavior. what we have to worry about is if the fed continues to tighten in a way that actually inverts the yield curve. impossible to know if that will be the case, but what is happening with this flattening is that many analysts are projecting a continuation of the flattening trend. eventually you end up with an aversion. happens, especially in

the u.s., you typically have a recession. if that were is we are headed, it is a ways off. i would not be overly concerned with it right now, but it is the ultimate question. francine: what is the probability that they make a mistake like that? that they actually inverts the yield curve? as far as alarm bells go, they are ringing so loudly about prospect of this. michael: if you look at the track record, that is typically how these business cycles end . the fed tightens enough to kill the business cycle. the u.s. has always been pre-stage, at least since the 1950's. >> now arguably the fed created the perfect landing. michael:. 1994,tely if you look at 1995, or even 1998, the yield curve that very flat.

it got very flat in 1995, but did not invert. it is possible that the fed could continue hiking, the curve continues to plan, but the ultimate -- continues to flatten , but they ultimately call off the tightening exercise until they run off the economy into a ditch. francine: i have a few questions , but before i go to those i want to recap some of the headlines we have had. we knew that the barclays chief executive would be fined. basically about two weeks ago the city watchdogs in the u.k. said he broke rules of conduct in his attempts to identify the 2016 whistleblower. the u.k. breast was saying how do you safeguard whistleblowers -- press was asking how you

safeguard these whistleblowers. do you see him keeping his job despite this fine? we have the amount of this fine, 42,430 pounds. that is the latest on barclays and the chief executive. coming back to the economic fundamentals of the u.s., is there now no longer danger that the u.s. is overheating? michael: i do not know that we can make that sweeping statement based on just say that cpi report from yesterday. what matters for markets over a longer amount of time is the feds model of the inflation process. their model of the inflation process relies on economics lack. the fact is that economic slack has been diminishing, so the fed

has been more confident that we have reached their inflation target. there are more concerned about overheating now than continuing to under shoe on inflation. personally i am not worried about that. based on the previous conversation, i think if the fed is going to do three or four rate hikes this year, the cumulative of effects of that should slow growth next year. nominal gdp growth is slower in 2019-2020 than it does this year. inflation is just not going to have the oxygen to run away on. my own personal view is that we do not have be in a panic about inflation. i do think that the fed is going to be a bit hawkish with a strong labor market data in their model of the inflation process. francine: how many rate hikes are you expecting? thatey need to make sure they replenish the toolbox before the next downturn? michael: i think we can pretty much expect quarter to quarter rate rises.

the balance sheet liquidity draining is basically on autopilot. they are going to wrap that up to a $50 billion rate. the rate hikes i think will be quarter to quarter through the course of this year and next year they are going to have to make a decision at some point. whether they call off this tightening exercise or continue with the risk of a yield curve inversion. francine: i have to throw in the prospect of rate wage rises at some point. you are talking about the strength that we see in the labor market. even if you're not worried about the oxygenion or provided to lift inflation higher than we see right now. michael: it is really the ultimate puzzle right now, the wage picture, especially low end wages, nonsupervisory wages. they have not responded to this significant diminishing in labor

market slack. we are of scratching our heads trying to figure that out, because any measure that you use, slack has diminished over the course of the last year. wages should beginning a little bit more momentum. a couple of things could be going on. if you look at the productivity track record from the peak of the last business cycle, it has been quite weak. if the fed is hitting a 2% inflation target, then in that context you would expect wage growth to be a little over three. somewhat faster than we see now, but not a dramatic pickup than where we are now. if wages start to get a head of steam, that could be something that panics the fed a bit. it does not need to be on inflation outcome. productivity could be picking up, and then the wage gains are justified. profit margins could be squeezed. on the overall

macro backdrop in terms of how that plays out. francine: for 2018, not the oxygen we're talking about looking forward. michael darda stays with us. stephen cook is coming up -- steven cook is coming up. from new york, this is bloomberg. ♪

♪ >> this is "bloomberg

surveillance." i am taylor riggs. goldman sachs will issue as shoes new credit card -- will apples new credit card. this arrangement with the iphone maker will replace its current arrangement with barclays. the companies are still formulating the product. italy, the -- bank has reported on unexpected quarterly profit. monte paschi needed a government bailout last year. the rivalry between amazon and google in the digital advertising market is heating up. people familiar with the matter say that amazon has quit buying a popular type of google advertisement. the pullback affects coveted real estate at the top of google

search results. losing amazon is a rare setback for google shopping as. that is your bloomberg business flash. >> donald trump has already outdone his previous efforts when it comes to dealing with north korea. he has put together a global coalition of sanctions, secured the release of three u.s. prisoners, and convened a summit with kim jong-un. let's bring in our correspondent. we talked about what success looks like for the united states, particularly in light of what seems like different definitions of nuclear disarmament from the two presidents. the question now is how exactly president trump is going to negotiate this. critics and supporters alike are concerned he might go off script with that meeting with kim jong-un on june 12 and singapore. other sourcese, suggest the level of unpredictability is something

that is an asset of sorts for president trump. regardless of what happens, i think we talk a lot about the u.s.-north korea relationship. we have to bring in the other countries here, in particular china. their influence in these korean peninsula denuclearization talks are crucial in getting something across the finish line. 90% of exports and imports from north korea coming directly from china. this is really all shaping up to be a very intense meeting, a historic one to say the least. republicans alike are interpreting north korea's release of those three american prisoners as a sign of goodwill on the half of the north koreans ahead of the meeting. >> messaging is so important. i was watching the speech they gave last night. the detainees released, but we did not give north korea anything. we do not pay anything to get those individuals based.

do you think he recognizes that he kind of needs this win ahead of the midterms? >> i think that in terms of the north korea issue, it is entirely separate with regards to what is happening with the midterms. i think there is a collective of agreement that this type of imagery would help them politically. a time whenly, at tensions are mounting in the middle east, especially between as a result of the pulling out of the iran disarmament deal come i think there is a heightened escalation right now. there is a need to show that the u.s. still has a cohesive strategy. you have seen that. forc out a political win mike pompeo -- talk about a political win for mike pompeo in securing those three prisoners. francine: talk about medicare. >> this is something that

president trump had campaign on from a populous standpoint. it is something that democrats has said they would like to work with him on. we are now hearing that the president has since backed off populous type of rhetoric in terms of being able to allow the government to step in and negotiate drug prices with big pharmaceutical companies. at 2:00 p.m. today at the white house the president is set to outline his vision for how to lower drug prices. he has had a lot of fiery rhetoric against big pharma in the past. the details of what specifically he will do our murky. he has walked back on the -- on what he had previously said with allowing the government to step in and help negotiate that. there is some question on whether or not he would let foreign companies come into the u.s. market or not, or make it easier to do so in order to lower drug prices.

from a political messaging standpoint, getting in front of the rose garden and saying you're going to lower drug prices, bringing home three korean prisoners, this is a strong week for the president, even as the robert mueller investigation heats up and the stormy daniels saga continues to unfold. francine: thank you so much. >> thanks for having me. francine: kevin, thank you. coming up on monday, we are live from paris from the gic central-bank series. we have an exclusive interview with the bank of france governor. we will be talking about euro, draghi, monetary policy, eu reforms, and inflation. that is at 9:00 a.m. in london on monday. this is bloomberg. ♪

♪ mike darda is still with us. one of the big risks is the strength in the u.s. dollar. i can show you a quick chart looking at the rally that we have seen in the past couple of weeks, particularly in the u.s. dollar. how concerned are you buy this? michael: i am concerned. the rates on risk-free caches in the u.s. are pushing 2%.

the are -60 basis points in eurozone and -60 basis points in japan. that is a strong incentive to become dollar-based. if you remember back to the had, thatck that we was associated with a lot of emerging-market turmoil, and a broader slowdown in u.s. economic growth. we even had a four or five quarter profit recession and 2015 and 2016. we have come out of that. are we at the point now with the fed continuing to tighten in this rate differential continuing to climb that the dollar starts to really take off? that is a bigger risk for the emerging markets and the commodity correlated sectors than for the u.s. as a whole. it is something we are concerned about. >> how much is strengthened do we need to see in the u.s. dollar before you become really concerned? how much further strength do we

need to see in the u.s. dollar before you say we have a problem? we have thehink if dollar continuing to appreciate, that is a headwind for the emerging markets. >> a signal? michael: yes, a signal and it would tend to underperform. if we start to get to double-digit rates of appreciation on a percentage asis, that starts to sting little bit. mkmmichael darda of an partners stays with us. this is bloomberg. ♪

♪ >> this is "bloomberg surveillance." julia and francine from london and new york. chief executive of barclays has survived a year-long investigation with only a fine.

british regulators have find them it hundred $70,000 for his attempts to unmask a whistle 170,000 for his attempts to unmask it was a lower. steven. us now is cook can he put this behind him? >> yes. this is the conclusion of more than a year-long process. because he settled early and accepted the judgment, he got a 30% discount on the fine. the laggards when when this scandal broke and the year-long investigation means that it is already in the back of some people's minds. no doubt it is a weight lifted from the banks shareholders. he is going to be able to move on and pay a relatively mild fine in the context of what he did. francine: what does it mean for

future whistleblowers? is this a sign that it is going to be very difficult to protect whistleblowers in the future? >> there was a lot of concern last month that this was not tough enough. this is the first test of the new rules and the u.k. they are trying to make it sacrosanct to protect a whistleblower at it is in the u.s. certainly what just daily -- just staley did was wrong. it doesn't seem like a slap on the wrist than a genuine punishment. francine: how long does he stay with the bank? >> he has been tainted since this first broke. the board have kind of really rally behind him. they want to stay on. i can only imagine if there was

a groundswell of rebellion a monk shareholders, investors -- among shareholders, investors, he would have gone. he is back on his feet again. they reported a good trading results in the first quarter of the year, which will strengthen his hand against an active investor. a lot of things have been going his way. far --s been heavier so has been his year so far. francine: thank you so much. let's get straight to the bloomberg first word news. oglala merkel is critical of president trump's decision to pull out of the iran nuclear deal. meanwhile, merkel discussed the matter with vladimir putin. the kremlin said they agree to keep complying with a run agreement.- iran the eu is looking to limit the

impact of sanctions on business is doing business with iran. german economy minister is ruling out a government fund to help german companies hurt by the sanction. he says he sees little movement on the part of u.s. negotiators. international monetary fund chief wants a quick resolution to credit line talks with argentina. the country asked at the imf and for help after a rout in the peso forced the central bank to raise interest rates to the highest in the world. argentina is said to be seeking about $30 billion. united nations secretary-general says he is optimistic the u.s. and north korea can reach a historic nuclear deal. he gives credit to president trump are pushing top sanctions regime that forced north korea --otiate destin negotiation to negotiate.

he says it is vital for north korea to get out of what he calls a straitjacket. 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 and julia? >> the trump administration has imposed sanctions targeting iran ian currency exchange network. 90 iranian citizens and companies were penalized. joining me now is bloomberg news state department reporter and steven cook. still with us is michael darda. great to have you with us. this is clearly targeting u.s. dollar use. do you think this is the beginning of a further ratcheting up of sanctions and the tensions with iran? >> it is certainly no surprise that the president said he would and there would

be more sanctions to come. it is a testament to the seriousness of that intent. there have been a lot of speculation that suggested the president would go easy in reinstituting sanctions. maybe there would be an interim period. he is coming right out of the gate just a couple of days after he made that announcement with a very strong signal that the u.s. is not going to go easy. it is certainly going to pose a lot of problems are companies that would do business with iran. this is going to cause european countries to set up a bit straighter in their chairs. >> these guys, particularly the european companies. help me understand the strategy here. is it that the united states wretches it -- wretches up tensions so much that whatever the eu does, it does not help iran, and they have no choice but to come back to the

negotiating table. >> it seems clear that is the president's intention. we will get another iran nuclear deal, one that is better than before. i would warn against any optimism. the iranians are going to figure out ways to get around the sanctions. the europeans really have no appetite for slapping sanctions on the iranians now. >> when you look at sanctions, theyind of all the work -- kind of only worked because the u.s. dollar is a funding currency. will that ever change? is it something that will give more fervor to the chinese and russia to get away from dollars? steven: it is certainly possible. we have heard about these things. we have heard a bottom up and say he wants to get away from the dollar -- we have heard a lot of your putin said he wants to get -- vladimir putin say he

wants to get away from the dollar. it provides opportunity for the russians and chinese to step in. the u.s. seems to be moving outside the international consensus. francine: nick, you were based in asia and china for a long time. now you are in the state department. i don't know how significant is sanctions are -- these sanctions are. it seemed like they found the right sanctions to really hurt the company. are we going to see more of those types of sanctions? >> that is certainly the pressure from congress, to target more of these oligarchs. what you see is a move that would please lawmakers. there is still that sense of doubt that the trump administration really wants to go through with this and punish russia. we will just have to see. this administration remains under so much pressure from congress. says it essentially

mandated the administration to proceed with more sanctions. there is still a lot of satisfaction and dissatisfaction that it has not -- dissatisfaction that this is not enough. francine: how will the iranians react? how do they respond? clearly they have to look like they are not pushed around to a certain extent. at the same time, the economic situation in the country remained dire -- remains dire. >> there are multiple centers of counter -- centers of power. rouhani has committed to remaining in the agreement. you can expect the iran revolutionary guard corps to step up their tablet the -- activity around the middle east to do damage to american interests in the region, while

working within iran to further undermine rouhani. they are much weekend now -- weakened now. >> does this deal even exist anymore without the united states? michael: it does not work -- steven: it does not really exist. europeansey your -- -- the europeans and iranians committed to it, this still does not work. >> please join us for our live coverage of president trump's speech on drug prices. that is coming up at 2:00 p.m. eastern time in new york. this is bloomberg. ♪

♪ >> this is "bloomberg surveillance." i am taylor riggs. russian aluminum producer rusal says its long-term prospects are uncertain. the company was hit by u.s. sanctions last month that rocked the entire aluminum industry. forecasts made in the past are unreliable. j.p. morgan chase once you take advantage of china's latest commitment to open up its financial market. ubs and numerous of them the same. chinese regulators say they will review the application. y between amazon and google is heating up. amazon has quit buying a popular

type of google advertisement. fx coveted real estate at the top of google search results. losing amazon is a rare setback for google shopping advertisements. that is your bloomberg business flash. >> israel conducted its biggest raid inside syria in at least 30 years. this comes as the middle east rivals edge closer to direct conflict. u.s. embassy in tel aviv is prepared to move to jerusalem on monday. we have our bloomberg news state department reporter, michael us.a, and steven cook with the timing could not be more sensitive for the embassy shift. >> right. president trump is very happy because he fulfilled a campaign promise. you see a subtle shift.

the delegation that the u.s. is sending for this change does not include the president, the secretary of state, a delegation from washington will be led by the deputy secretary of state, john sullivan. i think there is something of a sense that maybe they want to do a ceremony. this is a big event for the president, but he is also -- or at least his advisers are somewhat conscious of the fact that this is certainly an inflammatory move. there is some expectation that there will be protests around this. there is a degree of nervousness and understand that comes -- this comes at a pretty bad time. >> talk to me about what we have seen in terms of the ratcheting up of tensions between iran and israel. it has been happening for several weeks. we see a heightening of conflict and an interesting response from russia.

steven: this is not really linked. this has been going on between israel and a run for a number of weeks -- iran for a number of weeks. the israelis have had concerns about the iranians becoming entranced in syria. they have pledged not to allow that to happen. this is existential for the israelis. they are going to take significant action to send a message to the iranians that they will not be able to do these kinds of things. i think we should expect the continuation of these types of strikes. francine: what happens to oil on the back of all of this? iran is a huge oil producer. can the shale in the u.s. make up for some of the production loss? >> this gets us into the realm of potential supply-side shock. what we were discussing the dollar earlier, those are driven

but demand-side factors. if the geopolitical risk or chaos in the middle east starts to threaten the supply-side for crude oil, what you will see is that oil will outperform other commodities. that is ultimately the risk here with the geopolitical backdrop that we're discussing. francine: does that filtered through inflation? if you look at the european economy, a lot of people are sing this could help with inflation expectations that banks have been struggling with. it actually hurt your pocket if you are consumer -- a consumer. michael: no doubt. adverse supply shock inflation is really not helpful. you would be pushing up prices, reducing real output. that is referred to as bad inflation. it does get reflected in the headline cpi for sure. central banks try to overlook supply shocks to the extent that

they can. i don't think supply-side shock is going to matter in a dramatically for monetary policy -- dramatic way for monetary policy. >> what are we expecting next week? really high-profile members of the administration are going to be in israel for the opening of the embassy in jerusalem. what are we expecting in terms of headline? >> from what i have been able to tell in talking to people at the state department, they want is ceremony that will go off without a hitch. something that is not in people's face. i was speaking with some people last week who said that the biggest problem right now was finding a tv screen sort of big enough to put on the podium so that the of it could be seen by enough people in the crowd. they are sort of focused on the

nitty-gritty of this thing. i think you also see administration that is very eager to play forward to what it sees as the president's successes heading into the kim jong-un summit in june. they want to sort of move past this and get to that summit. and really play up the historic nature of the handshake that we will see a month from now. francine: when it comes to the handshake, that historical handshake, does russia want the handshake? this china want the handshake? is it in their interest that this does not go to plan? >> i think at this point that handshake is going to happen. there is very little that some of these other players can do to make it happen. this has been a long-term strategy on the part of the koreans to seek the legitimacy of a meeting with the american president. it will happen. i think there is very little

that the russians or chinese can do about it. francine: great to chat with you. thank you for joining us. michael darda stays with us. remember that bloomberg users can interact with the charts shown using g tv . you can browse recent charts featured on bloomberg tv, go back in time and rewatch things that you like. you can see the very excitable david bloom from this morning. who would not want to watch him again? all of the options are there. that is tv , and this is bloomberg. ♪

♪ >> this is "bloomberg surveillance." julia and francine from london and new york. mkm partners from is with us. this is his chart. you can see they are kind of converging, they're kind of tracking. from december of last year they go in opposite directions. when will they go back in the same direction?

good morning to our radio listeners. mike? michael: interesting chart. the key question is: what is the boj going to be doing going forward relative to the federal reserve? i mentioned that the t-bill yields in japan are -14 to -16 basis points. in the u.s. they are pushing 2%. just on that basis you expect the dollar to be appreciating against the yen. the boj definitely needs to continue to do what they have been doing. i think they have had some success. if you actually look at the statistics, if you look at nominal gdp growth and inflation, the average growth rate since to be 13, there has been a pre-dramatic improvement. if we do a fair assessment, i would say that the program is having some success, and they should continue to not be in a

reversingo start and follow the fed into monetary tightening. francine: i wonder if we are underestimating the political risk in japan. there are questions asked about the role of mr. shinzo abe. there are elections. what does that mean? michael: that is a crucial point. you have an aging and aged population. having an explicit policy of raising the inflation rate is not an easy thing to do. you could have on election or the outcome of an important politician. that could disrupt the applecart. . that is absolutely a key point. francine: does that had further weight to the weaker yen and stronger dollar story? if we do see a broader spillover of political risk? michael: it could actually go the other way. if you have a situation and

japan where looked like they were going to throw in the towel on their reflation effort, you could get a big -- in the currency. they were viewed to be moving into a reversal of strategy on the reflation efforts, then things could move the other what. >> final line here in terms of takeaway. we have come through earnings season in the united states. there is some caution over where we are in the business cycle. whether we should be optimistic or more cautious. what are the underlying fundamentals as far as the u.s. is concerned? michael: underlying fundamentals are strong. recession risk over the next month is basically zero. labor markets are relatively strong. the bigger question is, what does 2019 and point me look like relative to this year -- 2020 look like relative to this year.

my guess is that they will be slower. francine: thank you so much, michael darda of mkm partners joining us. we will be interviewing the bank of france governor. that is at 9:00 a.m. in london and four clock a.m. in new york. we will be speaking with cleveland fed president. it will be great to get her -- come on the inflation, maybe the inverted yield curve. thank you so much for stepping in for tom keene, julia. have a great weekend and this is bloomberg. ♪ retail.

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>> drug companies brace for impact. president trump will outline his plan. the curve keeps a flattening. it could invert my september. get ready for draghi. the topic is the state of the union. the backdrop is italy on the verge of a populist society. daybreak.""bloomberg also.is joining us president trump will tell us what he is going to do about drug prices. before that, he is going to meet automobile companies. we have a lot u