francine: trade talks in washington. steve mnuchin begins two days of negotiations with china after trump -- what are the chances of seeking a deal. italy's waiting game is caught between the two leaders. when we will -- when will five-star come to an agreement? theresa may's cabinet may be planning on staying in the customs union as a last resort until an irish border solution can be found. ♪ francine: good morning. welcome to "bloomberg surveillance."

i am francine lacqua in london. these are your markets. a lot going on. the stocks pretty much flat. the euro-dollar is what i am looking for. the pound because of some concerns of the brexiteers overseeing the customs union -- we understand it has been backwards and forwards. whether that is in case -- what is -- whether that is the case. you can see the u.s. 10-year yield above 3%. we are looking at corporate's -- corporates. a condo closely. you'll be pleased with your cracking of the u.s. markets. ocado gaining. you have betting companies getting hit after u.k. government reduced the size of bets allowed on gaining machines.

down 4%. coming up, we get kit juckes. later on we have conversations cottarelli. we ask him what it means for deficits if we do get a five-star government. we talk customs union with kim clark -- ken clarke. edward: the white house has distanced itself with the north korean staff. the comments from sarah huckabee sanders came after pyongyang attacked john bolton for trying to force abandonment and threatened to walk away from next month's summit. the president says north korea has not raise concerns about his plan to meeting with kim jong un. >> we haven't seen anything. we haven't heard anything. we will see what happens.

ed: former u.s. secretary of state rex tillerson is taking a shot at president warning that a growing crisis of integrity has put american democracy at risk. he said it would lead to a loss of freedom and added the only society able to pursue the truth and challenge alternate realities could be truly free. trump fired tillerson by tweet in mid-march. >> if our leaders seek to become accepting of alternative realities that are not grounded in facts and we as american citizens are on a pathway to relinquishing our freedom. ed: the federal reserve dot plot is getting old. so says the president of the federal reserve of st. louis. it's just rate forecast from europe's central bankers. james bullard made the comments in an interview with bloomberg.

>> the idea that your naming the number of rate hikes we out in the future when you don't know the data is going to be is something we should get out of the business of doing. shares has jumped after kroger agreed to buy a stake in the grocery. -- in the grocery. marks ocado's biggest deal so far. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. i am ed ludlow. francine: let's talk trade. lawmakers have pressed xi jinping to stop unfair practices. the chinese vice mayor is in washington -- vice premier is in

washington this week. it is his second visit after an earlier round of meetings. kong,re let's get to hong enda curran. what are we expecting? what is the chinese delegation trying to get out of it? enda: we are into a critical few days. i think there's an expectation --t perhaps there will be china will be up to nudge things forward to make concessions, making offers to buy more u.s. imports. wraps more offers around just perhaps offers around -- wraps were offers around opening up its economy. more will determine on the pacific's -- on the specifics. the bigger backdrop of the u.s. challenge toward the made in china 2025 project to build and

develop high-tech cloning. i don't think anyone expects much of a resolution of that broader issue of the current phase of these talks. it is more about can they get a willterm cluster that avoid a trade war. francine: talk to me about peter navarro. he was in the talks. they talk about a lot of tension when he was in china. this was an offer that was against china. will that work the chinese if he was in the meeting? -- will that irk the chinese if he was in the meeting? and a coat they conflicting movements within the trump camp. the conflicting movements within the trump camp. he does have a very hard line toward china when it comes to trade.

he is pursuing a much more aggressive agenda. rememberss, we must that both sides have said they are opening to do a deal. there's an expectation with mr. mission that there will be middle -- mr. mnuchin that there will be a middle ground. how durable and how long-lasting that compromise is is very difficult to say. there's a next vacation that some kind of a deal will be met. -- there is an expectation that some kind of deal will be met. we will be back to a fears of a trade war -- back to fears of a trade war. francine: you have been following the two koreas. will that be discussed in the meeting? will the u.s. show flexibility?

enda: it is a big variable in terms of the trade story. treated, trump once why would i go hard -- once treated, why would i go hard on china? the leadensions over up to the summit in singapore on june 12. if that is another reason why there is a viewed the u.s. and china want to meet and find a middle ground on trade to iron out some difficulties on that side of things so they can focus on the broader security challenges from north korea. it is a reason people expected deal to be done. curran, our chief asia economics correspondent. markets. for your fx joining me now, kit juckes. you also have a note saying worrying about the version. we'll talk about the fed.

actually hurt treasuries? kit: there is relative calmness at the moment in the since it looked as if this issue was going. president trump wants to do a deal, likes to do a deal. finally it is coming back. we will add to some of the concerns. we have problems with trade. we will get slower growth but will get higher prices of something. there is no trade war that was disinflationary. it is bad for a bunch of countries including the u.s. francine: are you expecting anything out of this white house meeting today. -- today? kit: i am assuming you are trying to do a deal. they are working toward finding a deal. it is in both party -- both

parties interest to get something done overtime. about -- welk to me have this chart up which is a great chart. it is a look at the fed funds rate. you can see the rate is the longest intuitive. are you worried? kit: what the fed has done successfully with the dot plot is guided market so that we can have a much flatter curve. that has helped depress volatility. it has helped prevent the dollar from getting stronger. i thought john williams was more interesting because he talked about what do we do when we get to neutral. francine: what do we do? kit: if you have on-time guidance and you raise rates, we

will invert the yield curve. you have to back off if you said, andmr. bullard inverted curve is going to depress inflationary expectation. francine: and inverted yield curve mean there's an end -- and inverted yield curve mean there is an -- affect your curve doesn't. -- a flat yield curve doesn't. there is less information now because we've depressed longer dated yields. i don't see how we can think that is a bad thing to have done two of lower elongated yields -- to have done to have lower elongated yields. if the signal comes out that neutral is where neutral is an rates are above it, i'll see will be tight because inflation

is getting higher than they thought it would. at that point we are at the back end of the cycle. francine: this is the inverted yield curve chart. the pattern is a little different. we run it all the way back to 1965. the downward trend of the flattening yield curve is from 2014 onwards. would it ever invert? do you think the fed is aware of it? invert ifnk it will we get it into late cycle acceleration. thatnk there is a danger inversion because the fed finds itself behind the curve. and the market sees that and at that point will put -- you'll be putting the squeeze on corporate profit. it is an old cycle. juckes from socgen

stays with us. stay with surveillance. but the coming up including the waiting game in rome. the former imf's just imf -- imf director joins us. we checked back in on the biggest corporate movers including al qaeda -- including ocado as the online grocery surges. this is bloomberg. ♪

francine: economics, finance and politics, this is "bloomberg surveillance." the leaders of italy's two biggest parties are meeting to finalize the government plans. five-star leader says he has agreed on a per gram but some

issues still need to be resolved. the italian 10-year yield has seen some relief after the newspaper reported that the populist parties have dropped their requests for 250 billion that right off -- billion euro debt write-off. e leaders are meeting. let's get to you. when will italy know if there is a deal? more important the president of the republic backs it? >> we have had a lot of deadlines and a lot of meetings. these two parties have shown their pretty good at blowing through deadlines and continuing to talk. they talked late into the night and they are talking right now. right now, the indication is nothing will be final between the two of them in till next week largely because both parties have pledged to run the

program by their voters possibly over the weekend. five-star plans to do that online and the league in a series of ballots across the country so we still have some hurdles before it goes to the president. francine: what is the impact on e leaders? they are talking about trade. will they also talk about politics and the impact it could have on possible further european integration? of course remember that [indiscernible] is not the person you need to speak to. at the same time, they will be relieved by these reports suggesting that the more radical elements of this potential government program are being ruled -- rolled back. this new italian government if it does come to be, it is

effectively demanding things of europe and european leaders which gives them a certain amount of power and respect to whether they concede to these demands. will that freak out the germans? if you look at the german government and the banking union that relief that could be on the table -- debt relief that could be on the table, does that mean the germans will not sign off on anything? alan: undoubtedly, of course, this will upset merkel. this is the last thing she needs when she is focusing on trade, on iran. time, i feel first of all they have to wait and see if the government comes to be. methodical.e is

she will wait and deal with it. these reports already backing down this italian government will be heartening to germany and others. who is being talked about as a prime minister? there were three or four names. the two leaders wanted to a rotated basis test wanted to do a rotating basis. jerrold: we have heard 10 names. the most recent thing we have saying thateport possibly five-star will hold on to the prime minister's position in the government and possibly that something he would take the interior ministry which makes sense because the lake has a hard line on immigration. that is something we have heard most recently. we have heard for sure that most of the ministerial employment

will be clinical. -- will be political. francine: thank you so much. what does the political situation in italy mean for the markets? kit juckes still with us. -- is still with us. our three angles. does the -- does it change the ecb's thinking? what does it mean for italian deficit? kit: i think it causes consternation around the european situation. i am no great expert on what they are planning. i do think the balloon on a coming that relief -- on upcoming that relief, let's put that out there because we will be able to do almost anything else. the -- know if that is

francine: it could be. geico where we go cup -- kit: where we go, that would be a hard line. what does this mean for the deficit. is italianonary fiscal policy about to get and how -- and what are they going to do about it?. i think that is where you will come through. the political decisions i would and opinion:hem, germany in terms of where the parties are because i suspect that would not make good reading for merkel. i think everyone is going to sit back and wait and see. the real important see is not some of the other stuff. i don't think it is parallel currencies. they all smack of trial balloons. the deficit is how easy is

fiscal policy about to get? merkel not more panicky about it? i am bringing in the spread between italian and spanish tenure. -- 10 year. katie look at something else? it would look a bit more scary. this is -- on monday and tuesday going,kets -- they were ok, this is more serious. it is in the debt relief story that will drive that. it is the longer-term story. spreads are wider. they are nothing like they were if you want to before mario draghi. a different world from that. we are in disney world with the where -- there's a big

shortage of risk-free assets. francine: in the market and this is the spread with german balloons. there's believe that these guys will dollar down. just dial it down. what if they are wrong? kit: if they are wrong, they will have a big test. the government had to back down on its plans. allow the country to go through a truly awful time the fiscal policy under control. the combination of reality, the world that the european country be toon means you cannot aggressive with your fiscal policy. all the more so if the rest of your will not stand behind you. francine: kit stays with us. for more on the european story, be sure to watch bloomberg later.

tencent is silencing the skeptics after delivering their record profit and better than expected margins. investors were bracing for squeeze from increased spending and investment. joining us now, lulu chen. we were talking about it yesterday. was solidified these strong numbers? -- what solidified these strong numbers? lulu: silencing skeptics is the theme of the day. margins, that is a very interesting question because if you look at their operating margin, it was not an increase -- it was an increase. if you strip down the other income, the other one off item, their core margins dropped. it looks like tencent is not going to let go. they are going to spend more, very committed to their online revenue, online streaming

projects. their online entertainment projects. they are going to spend into new retail. the spending spree looks like it is going to continue. francine: what do we know about gaming? for all of our viewers, we sometimes forget tencent is the eight biggest company in the world by market cap. lulu: gaming is the most important part of their business. investors were super interested about that part of the business. the broader guidance that the government -- the coveney gave is although you saw some gaming,ts with their pc the broader trend is uses are shifting from pc to mobile, league of legends, crossfire, all these things are showing signs of weakness. on the brighter side for mobile for licensed games -- mobile, they have licensed games . the question is, when will the monetizationprove

and also approved the licensing npc -- and pc version for china. we are expecting a bump in their revenue income. that is what investors are waiting for. francine: lulu, thank you so much. up next we are live from a lot where we are joined by carlo cottarelli one exclusive interview. we will talk debt and the future of italy. that is coming up here on bloomberg surveillance. this is bloomberg. ♪

"to force a unilateral nuclear abandonment." koreaesident says north has not directly raised concerns about his planned meeting with kim jong-un. >> we have not seen anything. we have not heard anything. we will see what happens. rex tillerson has taken a

veiled shot at president trump, warning a growing crisis of ethics and integrity has put american democracy at risk. he criticized on facts that he said would lead to lots of fruit -- loss of freedom, and the only society able to challenge the trump fired tillerson by tweet. >> if we as people become accepting of alternative realities that are no longer grounded in facts, then we as american citizens are on a pathway to relinquishing our freedom. plothe federal reserve dot is getting old, says the president of st. louis. forecasts from your central bankers. james bullard made the comments in an exclusive interview. >> this whole idea that you are naming the number of rate hikes

way out in the future when you do not know what the data is going to be is we should get out of the business of doing. shares have jumped in london after kroger agreed to buy a 5% stake in the u.k. grosser. marks a caught's biggest deal so far and first in the u.s.. kroger will be the exclusive user of its technology of distributing groceries. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am ed ludlow. this is bloomberg. in a couple of minutes we will start our brexit show and we are getting breaking news from theresa may saying the u.k. will meet with the customs union and negotiate customs partnerships. this is after we had a situation

in the u.k., much like italy. we had some contradicting and conflicting reports about whether the u.k. would stay in the customs union until there was some kind of technology that would allow for the border with ireland to be technological. we will try and dig a little deeper into this brexit issue. story,et back to our top the leaders of italy's two biggest parties are meeting this morning to finalize their government plan. the italian 10 year yield has seen some relief after the populist parties dropped their request for a 250 billion euro debt write-off from the ecb. joining us from is carlo cottarelli, former executive director at the imf. touted quite a lot as a possible prime minister. welcome to bloomberg. what would it take for you to be the prime minister of italy?

carlo: i do not think there is any possibility. forways said it is an honor an italian to serve in the i thinkgovernment, but the action is moving a different way than the one i could possibly be involved in. francine: are you talking to the parties? we will talk a little bit about -- you are not talking to the parties? carlo: nobody is talking to the parties. francine: but they may be watching bloomberg. when you look at the debt relief, and you look at what exactly we know and what is pressed speculation or leaks, what do you think the two parties are looking at that would be accepted by the president? tolo: i think the proposal cancel 250 billion of debt has gone. the most recent draft of the contract of this plan simply

would request to the european union to change the rules and not include in the fiscal rules debtebt, not to count as held by the central bank. i do not think there is any chance of this happening. it is not a strong proposal that was put forward initially. there are other things that are still quite controversial in terms of possible discussions with the european union, very controversial. francine: talk to me about the lowering of the retirement age. at the end of the day, is there anything in the program -- and we do not know if it is in the program or they are leaks that they went back on -- but is there anything in the program you would support, the flat tax or anything like that? carlo: there is definitely some good stuff in the program. the fight on democracy and corruption. , thedea of speaking up

legal proceedings for civil justice, which is an important reason why investors'enterprises do not invest in italy, is because the justice system is slow. there are other things that are quite worrisome, like basically the idea that if italy has to grow more, it probably needs a higher deficit. that is going to be conflicting with the european roles. the deficit is supposed to decline, not stay at the current level. , the contract, and it is being said that these parties believe the deficit should increase. that is seen as a way of reducing public debt, which i think is an oxymoron. i think that is what they would like to do. francine: this is also why they voted on. they are the two biggest parties

in the last elections and they were not voted to keep the deficit as it is. how much can they deliver on the promise? 10%, without upsetting too much of the economy? carlo: there are no specific to -- numbers in these plans. tax and this minimum income given to everybody in italy who does not reach a certain income involves quite a lot of money. the plan also talks about a possible source of financing, like once again, it is pending review, but we doubt specifics. aspect, they talk about reducing the level of existing patients at a certain level.

at the same time, they want to go back, not a race but replace the left -- raise, but replace the last patient reform, have a new reform. there are altogether and increasing spending in pensions. francine: how worried are you that some of the leaks will go through? going back to the numbers, you say do not have specific numbers, but what could the markets take? you saw the spreads between the german bund and the btp's increase. how much more uncertainty can it take? carlo: i do not believe the markets will react anytime soon. we saw an increasing spread yesterday. that was because it was something so obviously impossible like this raising 250 billion plans, that has been removed.

given this, i would not expect a particularly negative reaction in the immediate future. the problems that come for italy, if the economy slows down, if there is a shock coming from abroad, if there european economy slows down, and at this point if the deficit is already wouldclose to 3%, then it become larger than 3%. then i think that the spread would move up and it will go up rapidly. we may end up in a situation similar to 2011, with the spread very high. they need at that point to tighten fiscal policy all of a sudden. that will be a disaster for the italian economy. francine: what are the chances -- at the start of the interview i asked if you would be prime minister and you said you did not have much in common with the parties. if you look at the others, they do not have much in common.

what you think is the chance of them forming a government now? it is taking some time. carlo: i think they will form a government. i said this from the beginning. i think they really want to get to power, to have a chance of doing what they believe is right. i do not agree on everything but they agree on many things, including the need to have a large deficit. the five-star movement is less convenient by this. convinced there is a need for a large public deficit. they will agree, i think. the only problem left is the choice of prime minister. it is not a minor issue but at the end of the day, they will be in power. francine: who could become prime minister? it could not be a switch of the two leaders, right, in some kind of rotation? that is something the international markets did not take kindly.

carlo: there have been talks about this kind of rotation. honestly, i do not know. i am confident that we will find a compromise. maybe the head of the five-star movement will be the choice. i think they will find a solution in the next few days. , they have actual specific draft of an agreement. francine: one very last question on the citizens income, the 780 euros a month that they offered in the campaign promise. can italy actually afford that in any shape or form? carlo: the cost of this is about 17 billion lira so it is almost 1% of gdp. in principle, one can find financing and the five-star

movement has made some proposals. problem is their sources of financing cannot be used for other things which are priority in part of these contracts. reducennot be used to the deficit, which i think will be a sensible thing to do at the moment. carlo cottarelli, thank you so much for joining us for an important talk. still with us, kit juckes from socgen. when you listen and look at the markets, the next solution, how will this government actually hold if it gets formed? kit: it will hold if it proposes things that can start doing and what it really needs is the global environment to give it a tailwind to help them on their way. when they calculate deficits and debt levels and projections, we look at market reactions.

as long as you have got the current state of affairs within the ecb, who has got the bond markets back if you like, so they can be quite extravagant in the bond market does not react too much. as long as the global economy is growing and the fed does not send the u.s. economy into a toession, these are as close the heartbeats of the economy as we will get. if you can get demand up and running, it will sort itself out. ae disaster is if we get bigger rise in bond yields globally as central banks pull back from qe, if the u.s. economy slows, if we get financial markets elsewhere, then everything goes badly wrong. behink it is going to difficult for markets to be violently against the idea of a european economy that has insufficient demand trying to do something to boost demand. europe's problem is that has a

great account surplus. we will see where we go. francine: kit juckes from socgen. up next, may's custom promise. her inner circle is said to have a backup plan for one of brexit's biggest conundrums. that is next and this is bloomberg. ♪

♪ welcome to our brexit show, live from our london headquarters. i am francine lacqua. ,et's talk bank of england weaker economic data cap the boe on the sidelines but one former policymakers says she would have voted differently. kristin forbes spoke to

bloomberg. kristin: when i left, i had been pushing to start the process of removing stimulus, raising rates a bit sooner than the rest of the committee. after i left, there was a majority vote to raise rates. i would have been comfortable with that, then i would've assessed the data that came in and likely given what i've seen happen over the last nine months , i probably would have been voting to raise interest rates at the beginning of this year. so before the meeting that just occurred. the last meeting was a difficult meeting. there was a slowdown in economic growth. i understand why people were hesitant to raise rates, as many indicated they might. i had already been voting for higher rates at that time and thought it was necessary to remove monetary stimulus, i probably would have stuck by that vote because it looks like a good part of the slowdown is temporary.

it is weather effects and should not persist and i do not think you should be changing rates month-to-month based on what could be temporary effects so i would stick with my longer-term, consistent message. francine: theresa may's and her circle have made a backup plan to solve one of blacks it's -- brexit's biggest conundrums, what to do about the irish border. they are proposing an extension of the customs rule once it leaves the bloc. it has come up against skepticism from e.u. officials and faces obstacles at home. good theresa may end up going down that path and what it work? joining us now is the director of international trade and competition, a free-market think tank. also joining us is david merritt and kit juckes from socgen stuck around. and we are grateful to him for that.

david, let me kick it off with you. there are conflicting reports and the u.k. press about the customs union. what do we know the prime minister wants? david: the prime minister once a compromise that will keep not only her cabinet contented. we have warring factions within the cabinet, but also the broader party at large. something she can get through at the whole of parliament when they've made it clear they will be voting for their own proposals or a new customs union with the european union. she has a difficult task ahead, and we have had the inner cabinet breaking up without agreement in the last few weeks. this current proposal seems to be a compromise to really do further problem further. it is not a solution to what the future customs relationship will be, but it defers the ultimate crunch time because they are saying maybe we could extend the customs arrangements a little beyond or a long way beyond the thatition period and use

as a backstop for this big problem against -- about the irish border. putting a border in the irish sea, theresa may said was unacceptable. it sounds from our reporting last night, that this suggestion did get through the inner cabinet. t from mr. go and mr. johnson. the next is the party at large. what sort of fuss will they make about this? is this something mrs. may can get through parliament with her thin majority? francine: what this fly? -- would this fly? will she have enough support from the pro brexit faction in the conservatives? are does go negotiations, an internal negotiation with her own party and cabinet. then there is the actual negotiation with the e.u. francine: which is harder?

>> the negotiation with the e.u. is much more important. francine: which is harder? >> they are equally hard but dust equally important. they should be aggressively going to the e.u. and saying this is vision of customs and trade facilitation, this is what our ideas look like, with text on the table, and allow the e.u. to react to that text, including what you do when the irish border. francine: why is that not happening? we do not know what we want. shankar: as long as you have both of these options on the table, the new customs partnership and whatever normal thing you might do in terms of a trade negotiation, they are mutually exclusive so you cannot go forward. you cannot get customs ready. cannot get prepared and it

is bleeding into the rest of the negotiations, the wto process, that is slowing down as well. the most important issue is not actually what is going on in the government and the cabinets and the parliament. the most important issue is we need to start the negotiation because if we do not start, then all of this is academic. all of this is a sort of unnecessary exercise. francine: but for that you need a piece of paper that is double-sided, 10 pages, 300 pages with what theresa may can go to the u.s. and we do not have that -- go to the e.u. with and we do not have that. shankar: you can sense the exasperation on the european side. they have repeatedly been saying, we do not know what we are negotiating for or what britain wants out of this negotiation. souringe that this is all the other elements negotiators are trying to work on, and time is running out.

we have an important european council summit a few weeks away in june. the idea that the british considered -- condition that the clear ahead of that is becoming a little implausible. the whole deal is supposed to be ready to be signed off, october, and we know what happens in europe over the summer months. the clock is ticking, as mr. barnier likes to say, and the pressure should be on. the fear is from both sides that this will be treated as an 11th hour deal that will be keeping up everyone all night, making everyone's blood pressure: with the stress and strain, and will we get a sensible deal under those conditions? francine: kit works for the beach. what is priced into the pound at the moment? kit: the pound has a fair amount of negativity priced in. we took sterling in trade weighted terms down to where was at the peak of the crisis in the

global financial crisis, lower the 1992. all we have done this year is bounce around among those incredibly depressed levels. i consider here and think, if you could get it to advance just high enough for me to sell it i would. the market has not defaulted from that. it would react more to good news. get more forl, you positive reaction because sterling is cheap, but we are not getting a deal. this is permanently anchoring ourselves to having our currency pretty much as cheap as it has been for a generation. , ite the only good thing is could probably get a little bit weaker if this drags on too long. we could agree -- euro-sterling is not moving, it is trading sideways. kit: i wish i had a better story

is ultimately i think this is going bad enough that if the euro finds a reason for anyone to start buying any, and we will trade euro-sterling between $.90 and parity, if we go down the current negotiating part unable to find a solution -- half, unable to find a solution -- path, unable to find a solution, then we will see euro-sterling clay trust -- trade closer to parity. what the -- shankar: prime minister and u.k. has to do is take the initiative and be proactive and go forward with an agreement. francine: with who? shankar: that is not a question of listening to one person or one faction or playing people off each other. the question is, what is u.k. policy? we have to present to the european union a text that actually has words on a page

that relate to the trade provisions, and the e.u. will react. we are very cartesian about this. we all must we have to negotiate the end state. the e.u. has to take part in this process and there is a lot of confusion. we also have to be careful here because we are at opposite sides of the table and it is in the e.u. interest to run the clock out. we are empowering their ability to run the clock out, empowering them in the wto and other negotiations. we are making it more difficult to negotiate an independent trade policy, more difficult to negotiate with the americans, and the longer we do that the worst position we will be in. have to break out of the trap we are currently in. francine: thank you for joining us, all of you. our guest host for the hour, kit juckes at societe generale.

bloomberg "surveillance" continues in the next hour. we will be speaking to the former u.k. chancellor ken clark at 10:30 a.m. u.k. time. this is bloomberg. ♪

♪ francine: trade talks in washington. steve mnuchin begins two days of negotiations with china after president trump makes concessions to cte. what are the -- zte. italy's waiting game, talks between the populist leaders are happening now. getting an extension, prime minister theresa may's cap and it may be planning on staying in the customs union as a last resort until an irish border solution can be found. this is bloomberg "surveillance." i am francine lacqua in london, tom keene in new york.

there was movement on the pound on the back of the customs union talking. we have many conflicting reports. a very fluid situation. tom: we are back to where we were 48 hours ago. we have dramatic moves in the market this morning. the most emotional one is almost touching $80 a barrel in brent crude. there were extraordinary tensions within the market and some of that comes through in the extraordinary right up of riteup ofiteups -- w comments.nhart's she links back to the attention of 2008. francine: we will do them again throughout the hour. we are speaking to ken clarke. taylor: president trump is showing flexibility on the upcoming summit with north korea. the white house has distanced

itself from national security adviser john bolton who proposed a plan for north korea to surrendered nuclear weapons. pyongyang threatened to walk away from the summit. numbers of congress are pushing china's top economic advisor -- members of congress are pushing china's top economic advisor on resolving the trade dispute. the head of the house ways and means committee said he urged liu to seize the moment and address u.s. concerns. in italy, populist parties trying to form a government say they have almost wrapped up their program. the leader of the five-star movement met with the league chief today. that theped a request ecb right off almost a hundred billion dollars in debt, but they will keep their call for tax cuts. shares of the british online grocer ocado are soaring today.

kroger agreed to buy a 5% stake. well gift that's -- will give its technology to kroger. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you so much. markets on the move this morning. equities, bonds, currencies, commodities. oil, we may get an 80 print as we are speaking. curve steepening this morning. it is not a breakout to a steeper regime but the grinding steeper yield curve. intermediate, 72.07, stronger by 8/10 of 1%. vix, with the equity back

up, we are back down to 13.57. the 10 year yield, i mentioned yesterday, up to 3.08, 3.09 24 hours ago and now we have come to a higher yield. most of the developed world action is in yen, that 110.68. brent crude right now 79.83 a barrel. we will do more of this on "surveillance" this morning. francine: this is what i'm looking at overall. the 10 year treasury yield is significant because it is above 3%. let's bring the board up. 3.1% is where i see it. pound rising, it did pare a we hadbit of gains as conflicting reports over the u.k. future with the e.u. customs union. the u.k., the ftse is doing all right. i am also looking at lira

heading back towards a record low as the verbal backstop yesterday that we had is starting to fade away. tom: let's look at where we are more long-term. this is inflation-adjusted 10 year yield 3.11%. when you take out the cleveland cpi, which was much more accurate about how our viewers and listeners feel, you end up above the 0% line, but in the long-term trend we have a long way to go to get back to where we were. here is where we were before the financial crisis, with real yields about 2%. if you triangulate it, we do not get back there until 2021, a long way to go to get back to when normal was from another time and place. francine: doing a little bit of jargon. the are star.

chart looking at the equilibrium of real rate of interest. we were hearing from john williams. he was saying he is a centrist backing the gradual policy tightening. officials view 2.9% is neutral and that is what we need to be looking into all of our conversations on fed and yield. tom: carmen reinhart is associated with bear stearns and the international monetary fund, to write about what is going on out there. she is acclaimed for her work with kim bro golf. she drop -- ken rogoff. it is must read. i will distribute it heavily on social. professor reinhardt, if the u.s. policy becomes tighter and there is no comparable followthrough by other advanced economies, the dollar strengthens.

there you have a double whammy. or the two thirds of emerging-market debt is dollar-denominated, now even more because of borrowing from china. this is not gloom and doom, but there are a lot of -- and this is critical -- internal and external vulnerabilities. joining us now is enda curran. , almost incredible soup. i don't know what the minestrone soup of china is, but that is where we are now. how concerned is china with apparent instabilities as carmen reinhart alludes to? are alwaysnk they very conscious when it comes to capital flows and the strength of currencies. they saw one trillion wiped off their own interest over 2015 at 2016. they got burned badly when they tweak with the exchange unit of

the u.n. i think they will enforce the capital controls as quickly as they can build up their reserves in advance of perhaps the dollar taking over and putting downward pressure on china's currency. china is in an ok position right now, but they will be nervous around sentiment and the risk associated with capital outflow and the weaker yuan. tom: what is so fascinating is it is not 1997 and 1998. bring up the chart. this is malaysian ringgit. i could've brought up the thai or indonesian currency. this is a log so the movement matters. thescope and the scale of 1997, 1998 crisis is unfathomable now. it is a better, deeper system. what does china do to assist these emerging markets across the pacific rim? enda: as you know well, they

played a key role back then but they still play today. they provided an anchor for the region by keeping the yuan stable. the view that if china wants to let go of their currency which they may have been tempted to do 20 years ago, a free-floating chinese yuan would send tremors through the market. keep it where it is as the key anchor for the rest of emerging markets. i think china is playing a critical anchor role in all of this right now and that is probably expected to be the kind of role they will play if we were to hit some sort of turbulence in the month ahead. francine: i want to bring up a book, the china book by peter navarro called "death by china." does it help or hinder having him in the meeting rooms with the china economic advisor? enda: we know he is in asia

hawk, a trade hawk. it would appear the trade hawks clearly have their voice around the table. we have mixed messages from washington in terms of who is willing to debate globalist. it is a good reminder that trade talks for the u.s. and china remain in pretty sensitive territory. there is no guarantee of an immediate solution to all this, even if there is progress on the goods and services site. the bigger structural concerns the u.s. has about china developing a state-sponsored high-tech economy, those will not go away anytime soon. a near-term deal would ease tensions. a lot of investors are worried about the long-term. francine: enda curran joining us from hong kong. in studio right now -- thank you both for joining

us. us. let me kickoff with you. when you look at the markets and trade talks, what will fx move on the back of? the chinese showing up at the white house, they had an ok meeting in china, but are we expecting an agreement as long as we do not have really bad sparks? jordan: i am expecting a trade deal on round two of talks is extremely unlikely. we are talking a deal where there still might be tariffs involved, just an agreement not to escalate them. risks are what the market should be focused on but it is not. people looking at the zte action and the previous scaling backs of nafta. trump is of the rhetoric but he will not go through with it. it is a negotiation. backpects them to carrot and everything will be ok.

out, that might come back in, especially once we get past may 22. then we might get an escalation in trade talks. zte news is fascinating. francine: is there any -- i do not know if there is a role to play for some of the europeans. president macron trying to mediate with iran and that the dots great. -- that did not go great. charles: it feels more similar when16 when he was elected he had been extremely rude about the european project. now with the ron and what is going on with tariffs, which as far as i can tell -- iran and what is going on with tariffs, the european union will be standing their ground and they

are waiting for the white house to say that europe will have a permanent exemption from the new tariffs. if not, they will not negotiate. i am pessimistic that tariffs will be slapped on europe. europe, i'm quite pessimistic. rochesterjordan sticking around. we will talk more about trade and italian politics. coming up tomorrow, andrew ' chief goldman sachs executive and cohead of global fixed income, that is tomorrow, friday at 3:00 a.m. new york, 8:00 a.m. london. this is bloomberg. ♪

♪ taylor: this is bloomberg "surveillance." it is a big blow to british bookmakers. the u.k. has drastically reduced the size of bets allowed on poker and roulette machines. that could cause gaining revenue to fall as much as 45%. the government says the machines are a social blight and pray on vulnerable. shares are down in almost -- are down the most animals two years. the company says it needs to take out capacity to get cost down. that is your bloomberg business flash. francine: thank you so much. italy's twoof biggest parties are meeting to finalize their government plan. the five-star leader has agreed

on a broad program with the league but some issues still need to be resolved. the italian 10 year yield has seen some relief after the populace hearties dropped their request -- parties dropped their request for a 250 billion euro right off. charles, you come to a time in politics, what kind of prime minister will be backed by the two parties and what the president giving his blessing? the presidentnk has to give his blessing to a government that can command a majority, especially after such a long negotiating period. the question is whether the prime minister is credible. the president can turn that personality down. i think both parties want it clearly, but they sort of cancel each other out. at things likely they go for a third man or woman, someone from

the administration, civil servants, or another party. no real name has emerged and they have denied it and distance themselves from it. that is why these negotiations might last into next week. francine: an angle that we have not talked about so much is that we are hoping for, or at least macron and merkel are hoping for a european integration that could be some kind of issuance further down the road or the capital union. does this freak out the germans? >> it is difficult for those in berlin arguing for more integration for those in the eurozone. there are philosophical differences between paris and berlin. they remain very much present and have held up negotiations. there isn't any immediate danger. in that draft coalition

agreement from yesterday involves agreement from europeans that they will not give. on the ecp bonds, which they bonds,opped, -- ecb which they have dropped. the french and germans will find it difficult to argue for more integration of the third biggest economy of the eurozone is led by such a government. francine: if we look at the spread between 10 year btp's and bunds, it widened and moved back a touch. well it go up and up? jordan: let's not the alarmist. it is a government that has a program that is a lot less scary from yesterday. they have trying just -- changed the debt write-off. francine: isn't that dodging? isn't that fiddling finances? jordan: i don't know. for markets, what really

matters, net longs slightly for the kerry

what dollar yen level do they tell the markets what to do? where is that level? jordan: because of fiscal stimulus, tom, the dollar yen is slightly less relevant to because of the fiscal stimulus, have consumption, and the fight is on board to do that correctly, and points of the market, everything is fine, consensus future if you get 120, still, that view holds on dollar yen trade i do not think you get it thereafter. tom: charles, let's go to

$1asia as well, yen data at .11. stay with us from london, from new york, this is bloomberg. ♪ new york, this is bloomberg. ♪ retail.

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tom: "bloomberg surveillance" in london and in new york and $79.85 per barrel. really making a dash. if you want to bring up the chart, really get that up here, anthony. aat we have is stability with recent leg up as well. francine, it started at some point with a vengeance. nobody ever saw it. nobody ever saw wti, there was

actually demand for it. as celebrate gaining as much 2%, near $80, and you also have to think about opec. very good. we are with charles lichfield and jordan rochester. when you talk about your world foreign exchange and all of that, i want to go back to the kathlyn hayes interview about the theory behind all of this. as you know, there is always get asked -- upset about market advantages and exogenous shots. what gives chairman powell, governor carney, mario druggie, the regime changed that the president is thinking about? , you need to have global growth flow, a risk of recession before you get the central banks off of a normalization pattern.

we are in a tricky situation with the fed before things take a, you need to have global growth turn, more than wt the beginning of this year. these sort of big market moves, financial conditions as well, tom, because the fed is loose, thanks to the efforts of the ecb the theory japan, has not gotten too bad. we have all of the small events, so it did not last very long. we sort of rallied back. we have been in the range of the snp. it is when all of these things are adding up, and it starts with the bank sheets, not only investors but also the corporate side. side. that is when the fed, you see the, bank of japan all acted that way. we are not there yet, though, tom. to a phraseto go from carney right now. we showed this moments ago. it is the same quote. thatight in the middle of is a veritable follow-through.

jordan, to me, the distinction is how alone the united states is. am i right on that? move to higher interest rates, is that a measure of how alone we are first is other jordan: the big difference is the relate cycle, we are talking two to three courses of sustained growth. wheres not a scenario this you loosen the fiscal restraint. you sort out those deficits. the u.s. went alone and is called expansion, to the level that the amount of treasuries doubled to the amount of last year and the central banks do nothing quantitative tightening. u.s. is ane, the

outlier. it does stand out tom: it does. we will do more data checks for u.s. is an outlier. you across all of surveillance. here is taylor raikes. taylor: the trade representative is optimistic that will be a new nafta deal by today's deadline, according to democratic lawmakers. paul ryan says reaching the deal by today is the only way we could guarantee a vote on the north american trade deal this year. special counsel robert mueller is turning his attention to president trump's longtime political advisor roger stone. a number of stone's associates have been asked about stones ties to russia and julian assange. wikileaks released thousands of stolen emails. president trump's lawyer michael cohen offered his services to the government of qatar for $1 million according to the

washington post. the post says after the presidential election, cohen was offering access to and advice about the trump administration. qatar turned down the offer. the eu will press british prime minister theresa may for more details on her brexit plans. they will meet with eu president. it is the last face-to-face you will have with fellow leaders before a key summit meeting next month. the major stumbling block still appears to be the future of the irish quarter. global news 24 hours a day and in more24 hours a day than 100 and 20 countries. this is bloomberg. francine: the u.k. prime minister's cabinet has drawn up a plan to finish -- fix virus border problem and keep some e.u. rules after brexit. the idea faced obstacles and

skepticism in brussels. news that boe will hike interest rates at least once this year, this despite slower than expected growth this year. we are back with jordan and charles. let's kick it off with the customs union as i think the situation is more fluid than we read. we do not know what they want. theresa may saying they are in the customs union and then conflicting reports of whether they extend it to they have technology to use for the border with ireland. >> we know the government's objective is to have a transition in which we stay in the customs union and single market. we are talking about the end of 2020, and an order for there to be trade talks and for us to get this transition, the e.u. wants clarity on how we plan to keep the border in ireland open. staying in a customs union or

close to the customs union could provide part of the solution. that is why we have these last-minute talks at the moment with the e.u., because by the june counsel we need to provide more information on how this u.k. plans to stay in. francine: really have it by june because right now there is -- will we have it by june, because right now there is not a draft? charles: i think we need to have progress by june or the europeans will want to sanction us and they walked back promises of the transition that were made in march. i do not think we will have a full resolution of the problem, but we need some progress. the cabinet has been fighting whether we should stay close to the customs union or may's proposed customs partnership. but also managing to reduce our terrace and the long-term and offering some sort of rebate the companies and products stay in the u.k.

some members want to facilitate trade at the irish border through technology that has not been tested yet. we could stay in the customs union beyond 2020 for some time, but whether that is enough for the europeans we will find out in june. francine: what is priced in with cable and europe-pound? is there more belief this will be a dodged question? jordan: i think you sum it up quite well. when i read the headlines i did not say this is a master both -- massive bullish event for sterling. when i read surveys and read this stuff from eurasia and a lot ofnk tanks, companies have a venn diagram. there is no latitude with the government is talking about and people have assumed the government will shift. at one stage, it would be a super hard brexit and we stretched the edges of that.

now it is kicking the can down the road. 2030 will be the next headline in the coming years, because a lot of people think back to the referendum. it was not really a large issue, so this is the sort of wing of the tory party pushing for this customs union, free trade stuff. it was not what the referendum was about. i am getting some frowns from eurasia. if i was to say one thing about sterling, investors have been expecting this. the main things that matter is for the bank of england's pricing to come back for august. for us ideally, we need the data to pick up. q1 was soft but we have seen the labor market data give us some help. we need growth data to pick up otherwise things will take a turn for the worse and we will have flat pricing. tom: we have kenneth clarke coming up to give us wisdom on the conservative party.

does the conservative party of the united kingdom have control of their destiny? charles: a broad question. i am sure mr. clarke will have an answer. tom: as a foreigner, it is bizarre. the day today ballet of this supposedly parliamentarian majority party is out of body. do they have control of where they will be or is it make it up as they go? charles: it is a party that has dealt with divisions for a long toe and has so far managed succumb them and come back to power when it has lost it. it has been more powerful than the labour party. they are also known for being extremely disciplined when push comes to shove, before elections, managing to get the message out. and the long-term, the conservative party will continue to exist despite the divisions we see at the moment. on europe, it is a question that divided the conservative party a

long time and it will be difficult for it to remain united behind one particular brexit policy. i think it is likely the prime minister, if she cannot prove to some of the members of her majority who are very much against the european reunion -- union, it is likely that she will depend on votes from people in other parties to make deals across the aisle or try to soften her policy on brexit, just so that she can have a majority and not necessarily depending on every single member of her majority. the party will be split on europe that i think it will continue to win majorities. francine: thank you both for joining us, jordan ross chester and charles lichfield -- jordan rochester and charles lichfield. a former chancellor of the exchequer, we will talk brexit, the customs union, and pound. this is bloomberg. ♪

♪ tom: maybe tangential to what we are looking at today, an important conversation coming up from the united kingdom, but right now brent crude, one of the mixes of an active day on data. this is brent crude back to $100 a barrel. it will go up to $110, $120, and then down to $30. there was some stability two years ago. , what is amazing here is the convexity, the ascent of brent crude right near $80 a barrel, is of note this morning. francine: it certainly is. we are keeping an eye on that and if brent reaches $80, what

exactly does that mean for consumers? if consumers start consuming less oil and what that means for the opec agreement. the u.k. prime minister theresa -- inner are circa circle has made a backup plan for one of brexit's biggest conundrums, what to do with the irish border. extensionooking for a of the customs union after they leave the bloc. how likely is the plan to work? we have seen a little bit of movement when it comes to pound and some of the asset classes in the u.k. we are delighted to be joined by andclarke, lawmaker chancellor. he is also an outspoken pro-european and the only conservative to vote against triggering article 50. always a pleasure to have you here to get your thoughts on

exactly what is going on in the customs union. we are hearing conflicted reports. kenneth: if you ask my opinion on the actual issue, i think things they are looking at the moment will require a sustaining of the existing arrangements through december 2020. neither of them can possibly be implemented by the end of 2020. , it isy other reasons quite a high prospect that in reality that transition period will have to be extended on the basis that we stay with the existing arrangements until the british have something else in place. francine: did you attend any of the meetings at downing street?

kenneth: i went to the meetings, which were quite baffling. they did not tell me anything i did not know. francine: did the cabinet fight? kenneth: i did not attend those. i was invited to one of these briefing meetings where the prime minister came and answered questions, and someone else presented these options. i could be persuaded to the so-called partnership, if you want to go into these arcane proposals. the technology solution i think is utterly intangible. francine: what kind of set up and leaving the customs union what theresa may have to propose to get you to back it? kenneth: i think parliament could come to her rescue because i want to table the motion, staying in the customs union. it is a concession to our extreme people, but a customs

union which means that you have no tariffs, no customs procedures, a common wall around. the alternative is what the house of lords proposed, we go into the norway solution. i would certainly buy that, although more important than i think we can issue improvements on the norwegian situation for the united kingdom has we are a more powerful country with a bigger economy. tom: mr. clarke, wonderful to have you today. we look forward to your appearance in season three of "the crown." -- are a conservative party your conservative party from a distance is in total disarray. we have oil right now over $80 a barrel, a real landmark. you served as long as lord palmerston with satcher and major. what is your prescription to

make the conservative party more cohesive? i am fascinated by what you think the party and leadership should do. it is pretty chaotic, i quite agree. the conservative party has often been divided. been as always particularly divisive issue. the inner desire to keep the party intact, we are largely agreed on everything but our relations with the european union. they have got to come to some compromise, which may not be possible on a basis that keeps all the present cabinet on board. i personally hope they will be steered by parliamentary arithmetic, moved to a compromise that is pro-business, less damaging to future trade, and slightly more realistic in my biased opinion. tom: where does that parliamentary arithmetic click

in, in the calendar of brexit? can they get the calculus right of parliament before the tough decisions on brexit? do they coalesce together, or is it afterwards? kenneth: that is a very good question, as i think there are people in the government trying to put off allowing the house of commons to discuss this again for perhaps some months, because they know they have lost control of their majority in the house of commons. there is a theory they will not have any european business again until the auto. -- autumn. there is an argument they need the basic withdrawal bill to pass. it is desirable, before this june summit of the e.u. leaders, which is the real crisis because ireland, which is the real trigger that is driving such progress as we are making, ireland really has to sorted out

very shortly after the june summit. francine: with the latest irish backstop proposal, the boa would be moving toward a full customs union membership. kenneth: i would hope so. francine: what do you think it will lead to? kenneth: their customs union is a red rag to a ball. a customs union is the language i use. the prime minister talks about a customs partnership. she commits herself to know physical infrastructure on the border and no barriers to trade on the border. that, in my opinion, means that you have the same tariffs, some regulatory alignment, no customs procedures. as we will not have a border in the irish the that means they will have -- irish sea, that means they will have the same roles. delays between us and

the european market will be solved by the irish dilemma. prepared would you be to vote down theresa may's brexit deal or the withdrawal bill, even if it looks like a rebellion which trigger fresh elections? kenneth: i have voted many times against the government already, and i think i am most rebellious in terms of my vote. i have been a lifelong supporter of the european project. i support the project of my party two years ago. and i have tried to get across to people, this is no reason whatever the way it should provoke an election. we had these arguments last year when i was running the rebels to force the government to concede that parliament would have a meaningful vote on the final outcome. we defeated the government. we had been warned we were going to make jeremy corbyn prime minister.

rubbish. thehouse of commons passed last amendment and brought some sanity into the customs debate. francine: it is a very simple yoution, if you think, if vote against it and it will automatically go to general election, will you still vote against it? , butth: personally i would i would not expect to be in the majority. now, ahave a legislation fixed term parliament act. even if the government wanted to threaten that it would call for an election, it would not be able to get a general election and it had a whole separate debate the next day and somehow contrived to get parliament to vote for an election. , silly argument to say it would force an election. it would not. francine: but it could, couldn't it?

-- only ifly of come people were completely mad. the argument that automatically would follow, it certainly would not, and in my opinion it would be positively perverse for anyone to force an election because parliament has expressed a majority bill aimed at the customs union. francine: that was the former u.k. gensler. tom -- chancellor. tom was telling us, a significant breakthrough for oil. brent crude hitting $80 a barrel. with us is bloomberg's julian lee. what does it mean, at $80 for brent, does it hurt consumption? i think rising prices are starting to hurt consumption , especially in the places where the oil prices flow into gasoline and jet fuel prices.

we are seeing that particularly in the united states, where retail gasoline prices are the highest they have been since 2014. we are moving toward the big driving season of the summer. these prices going up will hurt consumption. we have seen gasoline growth consumption slowing down. we are seeing some of the asian countries that previously had , thosezed fuel prices subsidies were taken off or reduced during the collapse in prices. those subsidies now either do not exist or much lower, so we are seeing price effects creep in where as in the past we did not. tom: have about 18 questions and we do not have time for that. let me throw up the chart on brent crude. julian has this in his kitchen at home. the answer should go down pretty hard -- the answer is you go down pretty hard. then we went flat.

, weticed this convexity have an acceleration the higher prices. why do we have that second derivative going on? julian: one of them is that demand growth has been much stronger than people anticipated. we are in the fourth year were global oil demand is expected to grow by more than 1.5 million barrels a day. you have to go back to the early 1970's defined a four-year period where demand growth has been that strong. the other big thing that is happened in the physical market is the loss of venezuelan oil. that really started towards the back end of last year. we have seen a collapsed in venezuelan production. venezuela has cut more supply than saudi arabia. tom: julian, we have to get you back on to talk about oil as we wander to $81 a barrel.

a lot of news out of washington, including a one-year term for mr. mueller. next hour, libby cantrell of pimco. ♪

♪ tom: this morning, dollar stronger, yields higher, brent crude touches $80 a barrel. emerging markets at the mercy of presumed u.s. monetary policy. they are not on the same page. there is dissent within the white house on china. hardliners, retreat. financial dealings, obstruction of justice, russian interference and on and on. one year on for mr. mueller, special counsel. good morning, this is "bloomberg surveillance," live from world headquarters in new york, i'm tom keene. francine lacqua in london.

european brent crude, $80 a barrel. it has to have an effect on emerging markets, on non-dollar-denominated countries. francine: it is also about the trend. it will have an effect. i don't know if it has an effect at $79 or $80 but it could trigger the markets. look at emerging markets -- a lot of them are producers. some of them, in india, consumers, for example. does that hurt consumption of oil? does it drive the price down or do they continue to buy oil, but then it impacts finances? an interesting angle. tom: lots going on. italy, we just heard from kenneth clarke on brexit in the united kingdom. the markets moving. first word news, here is taylor riggs. taylor: president trump showing flexibility on the upcoming summit with kim jong-un. the white house, from john

bolton, who proposed a plan in which north korea would propose banning nuclear weapons. north korea threatened to walk away from the summit. top economica's advisor on unfair actions. this weekashington for talks with the administration on resolving the dispute. ahead of the house ways and means committee, kevin brady says he urges him to seize the moment and address concerns. in italy, the populist party trying to form a government, they have almost wrapped the program. the leader of the antiestablishment five-star movement met with the lead chief today. they dropped the request that they write off almost $300 billion in debt but they will keep the call for tax cuts. grocer, kroger has agreed to buy a 5% stake in a deal in

which home delivery technology would be licensed in the u.s.. the company may open as many as 20 automated distribution centers in the u.s. within three years. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. tom: thanks so much. ebb off the market of three years ago. equities, bonds, currencies, curve steepening. euro, an outlier in the last, 1.18. a lift in american oil. next screen. into 13.4 --day yield 3.11%. now 3.110%. dollar-yen, more information than euro. 79.91, i believe it

was $80. the intraday high. francine: this is what i'm looking at. overall, spending time looking at brent. i'm looking at treasuries. the 10 year yield, quite interesting, the top 3.1%. we need to go around the world and look at the fluid situation in brexit and the market impact on that. the pound rising. gains, amid conflicting reports over future in the eu customs union. tom: we go to china and any number of themes. chief asia economics correspondent. enda, we are seeing market gyrations. how does china adapt to a weaker yen? how do they adapt and adjust to domestic bond prices going price down, yield higher?

have key i think they defenses. bounce payments are in good order and they have very strong rigid capital controls. it is not like money can caps off in and out of the country on a dime. china has been rebuilding reserves, $20 trillion over 2016. keeping currency stable, in terms of their own house, they are not a bad shape. the key risk is external. where does the dollar go? where does the fed ? that would put pressure on china's currency. this is oneperu, quote of an extensive transcript. this transcript is must read this morning for anyone on global wall street. reinhardt, rinehart and rogue off. the dollar strengthens, double

whammy. more than two thirds of em debt is dollar-denominated, now even more because of barring from china. this is not gloom and doom but there are internal and external vulnerabilities." one is mr. kudlow and mr. navarro being kept apart on the airplane flying over to china. how does china adapt and adjust to basic warfare going on at 1600 pennsylvania avenue? reporter: certainly by all accounts, signals and messages out of washington are conflicting. we have reported before china has complained, they were not getting a unified message or set of demands out of washington and they want a goto person. this won't help things. critical few days now, in washington, and it will be critical to see if they can reach a deal, perhaps in goods and services.

i don't think anyone expects a broader solution to the bigger structural concerns that the u.s. has about china. the best we can hope for a near-term, is a plaster that diffuses tensions over the next hurdle. francine: first of all, who is at the negotiating table? from what president trump said, he is more willing to negotiate and find a solution? but what does it mean that peter navarro is back to the table? are we trying to read too much into signals? reporter: it is an important signal. it is -- he is definitely one of these guys, particularly trade talk on china. we had that extraordinary tweet from mr. trump which seemed to hint at a deal on the table, a softening of sanctions. there is an expectation that a

deal could get done on the good side. if it doesn't we're back to the clock ticking down to the imposition of tariffs both by the u.s. and retaliatory tariffs by china on u.s. goods. then we had down the path of straight trade tensions, if not a trade war. tom: thank you so much, reporting in perspective from hong kong. we thought we would drive it back to equity markets. all markets are moving around. christopher grisanti is always calm. he is now debased but always value-based but always looking at not losing money. how have you been doing in the last 90 days? chris: we are not losing money. value is underperforming growth. in the middle we are behind the growth averages but ahead of value averages. we are comfortable.

what we're looking for in this expensive market, individual companies that have stumbled but not for earnings reasons. tom: bring up the chart if you would. this is the dow on the 200 day moving average. i'm sorry it shows the resiliency of the equity markets versus yen, oil, and on and on. chris: don't be sorry. tom: let's talk to chris croissant he right now. -- chris grisanti right now. what are you watching for if the angst moves to equity markets? chris: we will have more than last year brought about by higher rates. it is classic late cycle. oil broke through $80 for the first time in four years. classic late style commodity inflation. the markets are still doing well. economies are healthy. spells good news for equity markets in the next year. francine: world growth leveling

off -- have we reached the the? -- the peak? chris: i don't think so. it is not synchronized but the u.s. seems to be accelerating as tom showed with oil. we have accelerated growth in commodities, certainly unemployment in the united states is reaching new lows. the only thing able to upset the apple cart is rates spooking the market and we don't think that happens until we get closer to 4%. francine: thanks so much. chris grisanti there, staying with us. later on bloomberg markets, the european central bank, the outgoing interview at 10:30 a.m. in new york, 3:30 p.m. we have not talked about the pageantry. the royal wedding. a whole different story. we are hearing and feeling

wedding fever. look at that. at this point, nothing would surprise me. we know they are rehearsing for the carriages and military. this saturday. this is bloomberg. ♪

♪ is "bloomberg surveillance," i'm taylor riggs. the u.s. tax overall shaking up pipeline business in north america. two of the biggest operators announced plans to repurchase subsidiaries. it allows the companies to absorb partnership businesses under government scrutiny because of the new tax law.

activist investor elliott management calling for changes at telecom. ceo.wanted to name a new last month, shareholders approved overhaul of the board with 13 new directors. -- a big blow to british bookmakers like william hill. they have drastically ruled back on gaming. back to cause revenue to fall by 45%. machines are a social blight, says the government. that is your bloomberg business flash. francine: thanks so much. the leaders of italy's biggest parties are meeting to finalize a government plan. the five-star leader has agreed with the league leader but some issues still need to be resolved. italian 10 year yield has seen

relief after the parties dropped the request for 250 billion euro debt right off. -- write off. i don't know how to interpret the fact that there was contemplation of the debt relief from the ecb. if it leaks, the market takes whatever the plan is better than expected? what is going on? >> it is a mixed factor. there are elements in the negotiations and putting together the program. the day we got the leak, it was three successive eu commissioners making remarks about italy. there was a general well by the five-star and the league to push back with provocative ideas. what we have seen since then, there has been tone down significantly.

this is a government that wants a fight with europe. they need it on deficit, migration, russia. domestically, a win-win. that doesn't mean bringing the house down. francine: a fight in order for what? campaign promises? a bigger slice of the electoral vote ? this is not a fight with europe. this is european law you cannot change. >> yes but look at the budget deficit. germany, france, ignoring the budget deficit. spain, a few years ago was at 5.4% of budget deficit. no one said anything. italy has been running a primary surplus. these guys want to spend more to finance initiatives. we can discuss about the quality of the spending -- francine: this is not infrastructure. this is giving 800 euros to every family in certain parts of italy. is this the right thing to do?

>> it depends. let's see how they will structure it. what we have now is not a program. it is not a blueprint for running a country. it is a combination of ideas in both parties. the parties are in campaign mode and they will remain so for the foreseeable future. let's wait for details. there is one thing we know about italy -- policymaking is extremely slow and complex. things,your well-to-do there is a process. with all sorts of legal appeals. but i'm trying to say -- the ability to deliver on the strangest ideas, like the universal basic income is limited. tom: would you please explain and translate out of italian, what premastric means?

what is it? >> you can interpret it as pre- euro. it was one of the pillars that took us to the creation of the euro. where, how it is being used, it is a flag. they don't mention the lisbon treaty, which is equally important. they use it as a flag. as i said before, let's take this program, with a huge pinch of salt. it is an electoral manifesto at the end of the day. tom: go ahead. francine: go ahead. tom: where is italy three days after someone comes to an agreement? when it actually gets done? priorities will

be reducing taxation for middle income families, amending the pension reform, doing something about migration or at least be seen as trying to do something about migration, making progress about universal basic income. these are priorities. everything else is propaganda. this has a shelf life of until next spring. the ability to implement other measures is simply very limited. francine: who can they put as prime minister -- that the president -- which is largely ceremonial -- who is the right person for the job? >> i don't have a name. that will have to be a politician from one of the parties. no way it is going to be someone outside. i think what we would be looking for -- given the agenda of the coalition -- the minister of

labor, the economy, the interior minister. the prime minister will be the guy, most likely, the guy, not the woman, i will say, that has done the work of both. tom: thank you so much. up. more coming movement this morning. oil, $80 a barrel of brent crude. tomorrow, definitive on international economics, we are thrilled to bring you a professor from the university of california at berkeley. must watch. on our new fragile emerging markets. this is bloomberg. ♪

♪ was november 27 of last year, the prince of wales announcing the wedding of prince harry to meghan markle. we are finally in serious preparations for the royal wedding. francine and i have gone back and forth hourly on this. we are both so excited. what i find fabulous is -- they may have the open carriage, but if it rains, they have the closed carriage, which is what i am rooting for. romantic, early 19th century closed carriage that queen elizabeth used 35 years ago. francine: i love the fact that we are interested in the nuptials.

fact that we are interested in the nuptials. there is always a business angle. it will cost 32 million pounds. i don't think it was -- it will be rating. i know you are romantic. it is amazing when you see the contribution of the royal family to the coffers of the u.k. another story -- theresa may's inner circle has made a backup plan to solve one of brexit's biggest conundrums. what to do about the irish border? they are proposing an extension of eu customs rule for the whole of u.k. after leaving the bloc. speaking earlier, the former u.k. chancellor, kenneth clarke, expressed skepticism. >> they will require us to stay in the existing arrangements well beyond december, 2020. they have different arrangements they are comparing. neither can be implemented by 2020. francine: we're back with wolfango piccoli.

what will happen with the customs union? i'm so confused. wolfgango: i think there is only one offer on the table from the you, which is -- that you, -- the eu which is, you are in or you're out. a customs union partnership -- it is not on the table. theresa may, she has to move toward the status quo in terms of custom union. we could talk about whether that will be regulatory alignment for the u.k. we can discuss. sanctionno temporary of the customs union. francine: that won't change? wolfgango: from brussels point of view -- that will not change. then you would allow the u.k. to benefit, then once they are out, you get out and leave the mess behind. francine: thank you, wolfango piccoli.

coming up, back with chris this entry and also -- chris grisanti. this is bloomberg. ♪ this is bloomberg.

♪ tom: good morning, "bloomberg surveillance," francine lacqua in london, tom keene in new york. we're looking at markets. dynamics. looking at washington and policy in a bit. on the equity markets, chris ti chris with us. home depot, walmart wanders out. the gloom three weeks ago was this was as good as it will get. guys like you, encouraged to be in the markets, said no, they are still making money. chris: they are making money. they are making more money than they were a year ago helped by tax reform. sales picking up. we're getting acceleration,

unusual. tom: how much cash? chris: hardly any. hardly. tom: hardly any is very scientific. cfa level is question three. what the hell is hardly any? chris: less than 1%. tom: exceptional. chris: we are finding lots of places to put it. tom: like what? chris: wells fargo, facebook and comcast. comcast my favorite. it is down for reasons exogenous to earnings. they're making money but because of the deal with fox, no one was to go near it. this is our opportunity for multiyear gain. tom: the idea of consolidation within industry, whether media, mr. murdock yesterday -- take over whatever the new fox -- is m&a your friend or a distraction? darwinianriend in a

way. the disney, comcast, viacom, fox get stronger. they will find it harder to survive without m&a. tom: hardly any. chris grisanti, we think the cfa institute for their support. darwin, the first and second editions as well. first word news. taylor: u.s. trade representative robert lighthizer is not optimistic there will be a new have to deal by the deadline. naftas according -- a new deal. paul ryan said reaching a deal by today is the only way he could guarantee a vote on the north american trade deal this year. robert mueller appears to be turning attention to president trump's longtime political advisor, roger stone. a number of his associates have been brought in for questioning. they've been asked about his ties to russia and wikileaks

founder, julian assange. michaelt trump's lawyer cohen offered his services to qatar for $1 million according to the washington post. just after the presidential election, he was offering access to and about the trump administration. qatar turned down the offer. eu presses theresa may for more details on brexit plans at a meeting in bulgaria today. president,et with eu the last face-to-face you will have with fellow leaders before a key summit next month. the major stumbling block to brexit, appears to be the future of the irish border. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. thank you so much. washington, in

three hours, any number of ways to go with kevin cirilli. me, -- excuse me, the yen -- forget about china. i want to look at the president's 24 hours. the president's son was front and center in the imagery of this soap opera. who is the legal counsel advising the president of the united states this morning, donald trump, jr. gets dragged into this yesterday? kevin: i talked to sources close to him and you see the 2500 pages worth of documents released yesterday by the senate judiciary committee -- democrats are saying what they've always at and republicans are saying what they have said. what america wants to know is who is representing the president? whether they love or hate him --

who are lawyers telling him what to do as we go into this bizarre week of legality? kevin: he has his legal team. the question is whether bob mueller will look at what came from the senate judiciary committee -- there is a report in the washington post last night about michael cohen soliciting a $1 million contract from qatar. not whether or not someone is trying to represent a foreign government -- it is whether or not they registered legally in the united states under that representation. that is what got paul manafort, the previous campaign chairman, into those charges with the feds. he was not registering, not saying who he was representing in which foreign government. albeit, that was at a time before he took on the trump campaign chairman position. michael cohen is entitled to

represent whoever he wants. the question is whether he did so legally and whether or not he registered. heiciting a foreign contact, would not technically be required to register unless he got that contract. by all accounts, he never got that contract. kevin, as the u.s. repairs to meet with chinese counterparts -- prepares to meet with chinese counterparts, do we know anymore about why president trump reversed his decision? think, two things. bilateral trade talks between china and the united states are coming. the second point -- this has a lot to do with north korea. north korea, if it wants investment for infrastructure from the united states and china, it could get tell a communicator infrastructure. n wasyou, that ban

implemented as a result of them doing business in iran and north korea. if kim jong-un once investment, he will have to get it by denuclearize and. rise. nuclear mnuchin will not be a part of the talks. they have a lot of beef. peter navarro, secretary mnuchin, stemming from that recent trip to china. they have ideological differences. peter navarro is not getting along well with secretary ross and secretary mnuchin. tom: thank you so much. kevin cirilli on your gossip moment. , pimco, will not talk the gossip of cable tv.

ane inverted we would have adult conversation about policy in washington. we are thrilled you are here. what to do about the denver broncos? libby: i am looking forward to a great season. there is nothing going on. seriously, there has been so much going on. the noise in the background, -- tom: noise free. what is going on? libby: there is a lot on trade and geopolitics. we are focused on nafta. speaker ryan gave a deadline. he said today was the day they needed to have a deal signed sealed and delivered to congress. that is not true. his working backwards. we probably have until june to get a vote by december. tom: the mechanisms yunnan capitol hill, can they dovetail

-- you know on capitol hill, can they dovetail with the president? nafta, trade is a difficult topic in any environment. going into midterms with a president whose approval ratings are improving but not super popular -- republicans would rather have voted on nafta yesterday. they don't want this languishing in the summer before hitting the campaign trail. that is the reason speaker ryan has been insistent on the deadline, may 17. congress doesn't want to deal right before voters go to the polls. is it best to take a matter -- best to take him at his word? libby: a great point. i have been talking ad nauseam to our clients and our

investment committee for 18 months. this is not a super ideological president. on trade, his entire public life -- if you look at what he said about japan in the 1980's, nafta in the 1990's, he has been incredibly consistent on trade. i think we should taken seriously on trade. we know the president likes deals. is singularly focused on the trade deficit. as it relates to china, the problems are deeper, they come international security. president is a trying to be more transactional. i think he will get pushback from washington if he is to transactional with the chinese. issuesre deep-seated that folks on the hill have with china. long way, taken seriously on trade. francine: what would be a

success? the relations are meeting at the white house. when it ends, what would be a success? libby: a great question. a lot of people are trying to decide what would be a sign of success. from the president's perspective, given his singular focus on trade deficit, if he got a real commitment from the chinese to reduce trade deficit by $200 million annually -- the figure the administration has put out -- as a first point in negotiations -- if they could get a commitment from the chinese that would be a successful president trump. this is a big however -- the rest of washington who are very focused of intellectual property theft, technology transfer -- i don't think they will be appeased. what they are looking for is a real commitment to structural reform. the problem there, china has

made it clear at this point in negotiations, they are not open to those types of structural reforms. it feeds into their 2025 industrial policy. francine: what do the chinese want? is there a north korea angle? do they meet together? the chinese play a crucial role with the two koreas. libby: you could make the argument that is why we are here with north korea, because the chinese have done an effective job of isolating north korea in the past few months. they have been responding to the trump administration. they play a critical role. that seems to be one of the primary motivations of president trump walking back. pretty draconian enforcement action against zte. decision from the

commerce secretary. at first the president had not been consulted, but he felt he could fully endorse that decision originally. the walking back of that is trying to add a relief to china on north korea. fiscal policy, do deficit to gdp in 24 months? libby: the absolute number, something we concur with. north of $1 trillion. number is ato gdp little lower than it would be because of the cbo's growth estimates. that would not surprise you. they are projecting in two

years, 3.3% for next year. bound,more in the range 2.5%. tom: public policy as well. we continue with chris grisanti this morning. looking at oil, $80. in boston, boston technology, caroline hyde, holding court in boston. we will explain to her why sam kennedy's wicked important red sox, the celtics, draft games. 5:00 p.m. tonight. this is bloomberg. ♪

♪ >> this is "bloomberg surveillance," let's get the bloomberg business flash. a judge has granted cvs a 24

hour reprieve. the judge has temporarily fromed redstone interfering with the defensive measure to ward off the measure and the merger with by,. -- viacom. ford resumes building the f1 50 pickup. supplier, stop production. they're trying to make up for it. that is your bloomberg business flash. francine: thank you so much. oil rising $80 a barrel in london for the first time since 2014 as u.s. crude inventories fell traders bracing for the impact on iran. kennedy, thank you for coming on. $80 on brent.

we have not seen this since november of 2014. does it have an impact on the amount of oil consumed? ia saidis what the yesterday. prices at these levels will start to have impact on supply this year. they downgraded a bit, how much prices will grow this year. they were warning producers these ranges, you will see supply and demand, direction, crimping growth as people worry about how much gasoline is costing, eliciting more supply from shale fields. francine: $80 is psychological? is a technical? it induces shale producers to turn on the tap? >> nothing but psychological. what $80 gets you is closer to benchmark gasoline prices, four

dollars, where consumers start to worry about the impact on budgets. shale producers are making money. for anis is a question oil strategist, like edward morris at citigroup. how happy are the saudi's this morning and does $80 oil change the politics of saudi arabia? sorry, i had trouble hearing the question. francine: he is asking -- i will translate. he is asking a difficult question. he set it up by getting you in trouble. are the saudis happy with this level because it helps their economy? >> yes. the important thing about this level, it is the level the saudi's said they wanted. they don't have targets but reporting shows officials are aiming for that mark. for them it is key for a couple

reasons. it helps them balance the budget. domestically. they have a lot to pay for, foreign policy, the war in yemen or domestic reform to help the crown prince do what he wants to do. they will be happy. $80 is what they wanted. the real question is -- will they want to go further? even higher toward $90 a barrel where people will start to worry about the impact on global economy. tom: in london with brent at $80 a barrel. on radio, your morning brief, look for bloomberg daybreak, coast to coast. ♪

♪ with brent at $80 a barrel. single best chart. an old war horse. inflation-adjusted oil back to eisenhower, then adjusted for rising income, greater wealth over the many decades. it puts where oil is, chris

grisanti, with inner economy. we are back to where we were, lbj, the kennedy assassination, opec 1, persian gulf. oil is cheap at $80 a barrel. chris: the good analogy is interest rates. people are freaking out at 3%. just like the oil chart, you have to put things in context. the average yield on 10 year bond since the kennedy administration is over 6%. now we are back at 3%. oil is going up but adjusted for inflation and wealth, it is a much cheaper part of the world than it was 30 years ago. r -- corporations prospe can you own big oil or exploration oil? first yearn for the ever had a larger yield and chevron.

-- than chevron. how the mighty have fallen and we are at the bottom of the cycle. exxon is not going out of business. they have a aa balance sheet. we like the oil service companies that have not responded yet to hire oil prices. still trading much closer to --han -- thant high. francine: have we touched peak oil? at some point we will focus on renewable? what value is there left in big oil companies? chris: that is right but we have been having the same conversation for 25 years. i don't think we are there yet. with rising, the emerging -- as theil usage bloomberg analysts said -- four straight years in a row, for the first time in 30 years, oil

demand growth. we keep seeing that with the strong economy. tom: you mentioned value. is revenue down the income state? can you own amazon as a value stock? 120s: no, it is selling at times the next year's earning. facebook or google, growing topline, over 20%. there you can make the compromise. tom: that is an important distinction. this is been wonderful. chris grisanti putting the gloss on equities. grisanti capital management, hardly any cash. coming up, jonathan ferro. he is so pumped over the initial data check. the well wedding as well. look at his phone. on, send me -- come to invite.

windsor is in rehearsals. the bridesmaids have been announced. it is a wedding. this is bloomberg. ♪ mom you called?

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♪ alix: the magic number. oilear yield cracks 3.1%, at $80. beware 2008. more cracks in emerging markets than five years ago as growth slowdown reveals vulnerabilities. walmart, macy's crushing it. walmart has to deliver solid growth in e-commerce. david: welcome to "bloomberg daybreak," i'm david westin. alix steel back with us. alix: i am back. david: we are waiting for walmart earnings. lots going on.

growth in e-commerce critical. they trailed in the fourth quarter, margins are important. people are watching to see how they're doing to move aggressively in e-commerce, given transactions around the world. alix: by the way. mkm partnerever, joins us on the phone. what are you watching?