francine: trade tensions. that field enough progress to make president trump walked back his terrorist threats. unfinished business, italy leaders put government talks on ice. the question remains of who will be prime minister. and they had for their longest week of gains in seven years, but will disruptions in venezuela and the middle east said oil to $100 a barrel. we will talk to the opec executive.

good morning and welcome to bloomberg surveillance. these are your markets. we are seeing a bit of a mixed picture comes to european equities. , am looking at euro-dollar 11813. there is a little bit of chatter that the chinese counterpart does not exactly offered to rebalance trade surplus by 200 billion, and we are trying to dig deeper on if that is a leak or the chinese only intimated. and you can see crude at 79.61 yesterday, it didn't touch 80, the highest we have had since november 2014. implicationst of for crude traders and some of the countries buying oil. coming up, we are live in rome where we have a exclusive

conversation with the former prime minister. an executivek to littlethschild, and a later, we will speak to barry eichengreen about the fed. but first, let's get straight to the bloomberg first reviews. u.s. president donald trump has rebuffed his national security adviser, saying libya is not a model for north korea. it nuclear has said disarmament should follow the libyan model, accepted by who was later overthrown in a u.s. backed uprising. north korea said such comments were repugnant and threatened to cancel the upcoming summit. there was no deal to keep gaddafi, the libyan model was a different deal. this deal with kim jong-un would be there, he'd be running his country.

his country would be very rich, his people are tremendously industrious. >> populist policies continue to wrangle over forming in italian government. it said policymakers are watching widening italian bond spreads and made the comments in an exclusive interview with bloomberg. we have to monitor the situation, of course. it is a change from what has been happening recently. the problems for italy are the same as is known by everyone, particularly in the market. so the yields and the spreads have been contained until , there is a spike we have to see how it will develop. warren buffett once called them financial weapons of mass destruction, now pope francis of

all people is taking aim at derivatives in a sweeping critique of global finance. the holy see singled out derivatives for score. the vatican called them a ticking time bomb. reach thes really level of religious doctrine is in keeping with his skeptical view of unbridled global cap to listen -- capitalism. the self-portrait overbite a casino mogul is said to have been self damaged and withdrawn from the auction. a paint roller attached to an extension pole punctured the canvas. it was destined to be one of the star cells, marketed to their fellow billionaires. global news, 24 hours a day, this is bloomberg. let's kick off with

our top story. trade tensions. china has denied reports that they offered trump a $200 billion reduction in their annual trade surplus, but say discussions are underway. joining us is our chief asia correspondent, and they for staying late to speak to us. what do we know, china's casting doubt on this offer. twist, they latest do seem to be counting diamonds from the report, that china has put a fair offer on the table by 200 billion. things,reminder of two that we are still in a critical and sensitive stage of negotiations between china and the united states, and it goes to show you that details continue to be ironed out in terms of the offer on the table. i think the day ahead will tell us a lot and whether or not the

u.s. will comment on any deal. i think there is broad acknowledgment that china made no secret that they are willing to make an offer on the good and service side. but it is the scale of the offer that is raising eyebrows in terms of how it can be executed. economists say it is quite unrealistic. >> a lot of people saying our it impossible. if they offer 200 billion, what would they want the u.s. to get back? do we know what the united states would counter offer? is obviously a tempting offer, even if not practical. china could offer to buy a suite of goods which would certainly be tempting for mr. trump to accept. as you say, the return would

have to be something, and china would also get some of the easing of their security reviews when they go to buy assets in the technology sector. these are areas that china has asked for before, it remains to be seen whether they will be granted concessions in those areas. offer to buy more goods and services, but presumably, they want something back in return. that is why i think the next 12 hours will be very telling to see where the story goes next. do we have a diffusing of tensions, or go down the road towards an all-out trade war? francine: thank you so much. so what do markets want from the china u.s. trade talks, joining us now is patrick armstrong. patrick, great to have you on the program. figurestill trying to

out exactly what we know, but let me bring you to my chart, the u.s. china trade deficits. what would be a success at this point, that talks don't become worse, or that we get a deal? patrick: the u.s. has not articulated what they want to achieve, so it will be almost impossible. you might be able to get a sound bite the trump could walk away with, but that is impossible. china exports of hundred 30 billion, or imports $130 billion worth of imports. add another 200 billion, it's impossible. to 100 billion as a reduction is almost impossible as well. the united states citizen make $50,000, a chinese citizen may $7,000.

the things chinese citizens can import our soybeans, things like that, the united states, you can sell value added products. so it is just a mismatch. francine: but it could be 50 years down the line. but that is seen as a win for the trump administration? patrick: you could portray it as a political would, but over 50 years, that will reduce. are slow-moving, and they are at different stages in their economic development. you will see the trade deficits start to narrow. it will be played out, but is not meaningful by any means. francine: what is the trump administration after? >> they want services. things like that would be a win. they want intellectual property rights being defended. lot about trade deficits, i think that is an opening gambit, saying we cannot

address these trade deficits, but you can help us out. francine: on intellectual property, have a rally with the europeans? the europeans have backed the u.s., that would have been a stronger front. patrick: it would have been, but that's not how they work. they like unilateral deals. that the trump administration way of doing things. can bestk they leverage their interests with one trading partner. i don't think a trade war is priced in by any means more likely. likely toere are retailers on both sides, but i do not think we are at the risk of things getting away from us. i think trump has shown a conciliatory tone, he has tweeted about concessions you will make. risks, but ie were think that town has diminished those risks. francine: think you so much. surveillance, plenty

coming up, including unfinished business as the sweet spot list of leaders put the governing building on ice. will they find time to settle the details of their program? we speak to the former prime and are we headed for hundred dollars oil? i think we are also getting some breaking news on italy right now , the mr. demaio, the head of the five-star movement, saying the final government contract is now agreed. we will get you the details in just a few minutes. this is bloomberg.

francine: this is bloomberg surveillance, i'm francine lacqua. news out of italy, i have to say, we are thin on the details, but italy's populist have deal to a final contract according to the five-star leader. far is thatknow so they have agreed on the government program. according to him, we don't know exactly when we will hear from the league or what exactly is in this program. joining us from rome is the former italian prime minister and current center. as always, thank you for joining us. this could not be more timely, we are expecting news any second. guaranteed income, lowering the retirement age, cutting taxes, how will all of this be paid

for? >> that is a very pertinent question. the financial dimension of the government construct as it is , whichis far from clear is in a sense, normal. this is the nature of the difficult operation of shaping up a government coming from two different forces and without much governmental experience. that's why, even more important than the figures that are in the program, is whether there is acceptance, intellectual and political acceptance, of some key points which are in the as they aretitution in the eu.

concerning the deficit, the gdp ratio, the debt, and other of thetial features economic and financial coexistence of member states in the european union. underneath the surface, the this question of the relationship of the new government is a fundamental one. francine: some of the parties, including the league, don't seem to be very concerned with market reactions. be, what market reactions become uglier depending on some of the proposals or government contract? >> they are right in not being too concerned about market but they are wrong if

they undercut evaluate these market reactions. i say this because we are all markets which are under a powerful anesthetic effects, because of the ecp qe. and in normal times, when markets are able to express , wer hopes and concerns will see a much higher jump in the spreads between treasury bonds. obfuscated by is qe, but this is by no means a ,ood reason to be complacent because we are under the permanent protection of an umbrella. the umbrella will close at some point.

i hope for the soundness of the economy and the financial markets sooner rather than later. we are trying to figure out what's in this plan, and what we understand for the moment is that the five-star the plan are seeking to end russian sanctions. is that theyknow are mentioning the bank of monte , that the statements redefined the mission. and just the latest bloomberg terminal headline is that this plan between the five-star andy lee will also seek 15-20% tax rates for companies and people. , isou were to advise them there something that they should be focusing on so that may be economic growth could make up for some of their spending plans? i think i would strongly urge

them to consider the economic is not generated by spending government money. specificlp either on productive investment plans or partnerships, or toe, in temporary situations compensate for efficiency of demand. italy is a low growth problem is due essentially to the total productivity, the low overall productivity of the economy, which will not be helped by injections of government money, but would be helped by injections of competition, higher quality of and incentives to

make the willingness of the brightest young italians to work in their country, maybe after some. of growth, instead of considering that it is better to leave the country altogether and forever. so for all of the people out there listening to us, and if you are a bloomberg viewer you can follow us on our blog, i just want to bring up-to-date what we know so far from this program. from demaior a post on facebook. what we know is that this program urges the review of the fiscal rules. clan, they say, is limited in deficit spending and they will seek an and to russian plan seeks ad the

15-20% tax rate for companies and people. you look, for example, at the russian headline, this seems to be a lot more relaxed. will that create friction with the italian allies and with nato? >> yes it would. has always been softer than many other european countries on sanctions to russia, also because the italian economy is considerably hit by the sanctions. again, here i see the presentation of objectives concerning eu politics. to achieve any objective, including the phasing out of sanctions on russia, it is crucial for the new italian government to be able to build up alliances, internationally,

and particularly in the eu context. i would again suggested that in theould be moderates presentation of their disruptive and they should become an accepted partner in the international discussions by the incredible at home -- by the incredible at home -- by being credible at home. is free to have ambitious objectives, but that has to go through a process of alliances, building building relations. course completely

new to their culture and i understand and respect that they come from no experience. hand, they had express a willingness to change of the italian public. i would also finally suggest that they had to targets. the italian establishment and the european union, basically. i would urge them to be a bit tougher in trying to change the behavior of the italian establishment, which in many antiquated, cozy, and unproductive. them to understand that the eu can be a powerful ally, not an enemy of the government in achieving this transformation towards a more modern italy. we are also hearing

from the five-star leader through his twitter that government contract has been published, and now he is move,ng, in a trumpesque members of the public. i would finally ask what you would do with the monte dei paschi as well. they want to redefine their mission, should they? >> no. they will have all of the possibilities if they go to government and stay there for five years, to modify the structure of the italian banking system or at least to try to do so. -- in jacked ideas out of the blue on very sensitive is,cs like monte dei paschi i think, disruptive for the firing and unhelpfully

-- backfiring. francine: thank you so much. he is mario monti, the former italian prime minister. now let's bring another heavy hitting the italian voices the conversation, our next guest is one of italy's most prominent businesspeople, chief executive of the oil giant. ago, he left the world of industry behind him and reinvested himself as a banker. joining us is the vice chair at rothschild, and patrick armstrong is still with us. be timed any better, we speak to mario monti, we speak to you, so we have the proposals and i will just bring back what we know so far on this new italian government, which is that they are urging a review of the fiscal rules, an end to and 15% tax for

companies and 20% for people. the people want a durable and long lasting government, candace government last a full to? -- full-term? >> first of all, we do not have a government. we should not forget that the decision who will be the prime minister has not been taken yet. say in it.has a big also on the crucial minister jobs like foreign affairs, like interior, and defense. we are not yet at the end of .his very complex process paolo: in terms of this process, we should not forget that italy is coming from years of no growth. a country that is lower than where they were in 2000 and eight.

the fact that people want radical change is not absent at all, it is something we should consider normal. terms of the durability of his government, for me, what is two partiesthat the have a completely different electoral base, the northern league is the party of the northern italy, it is a pro-business party, essentially. francine: and immigration. -- anti-immigration. >> illegal immigration we should say. in northern italy, the power is so high that the voters of the league wants immigration. they want it to be controlled and not as wild as it has been in the past few years. the northerly is pro-business and once the votes of the

northern italy. the five-star is in electoral base which is the opposite. not necessarily against business, but certainly the pro-business is not their priority. are soces which different and their electoral base, in a country where you thinkvery year, makes me that life in the new government would not be easy. ask you, wewant to saw a bit of market action is not much, monte dei paschi is down 4%, du have any exposure to italian banks? patrick: we don't have any italian banks. you can see the spread has gone up a bit, not too dramatic a statement. populist parties come to power and talk about what they want to spend. when they start to administrate, that's when they have to talk about funding. initial statements are always

more extreme. if we can change the screen, i want to show you what this government contract looks like, which mr. demaio is asking a lot of citizens to go and vote online. but this is kind of the front page, and as far as i can see, it's 41 pages in this government contract. but the way that you positioned it, it is true, they are different parties. the point they have in common is that they are antiestablishment, you could call them both populist. damage could be limited because it is difficult for them to actually agree on whites -- on points. paolo: and it will be difficult for them to do and undo things. difficult for several reasons, because italy is a complex party and country, in which to make

change has been difficult for everybody. think of the problems in changing the constitution, so it is not easy to change things. the bureaucracy is against any we have a place of the republic which is to sign every law, to make sure the law is corresponding to the constitution. it is a complex mechanism. what i see, looking at the glass half-full, i would say it is also difficult to make changes on the good things the country has been doing. i am talking about the job at, or the bank reform of mr. monte -- monti. this is the path that we were given. there is one thing that we are missing, may be released to the

markets, which is maybe what we need in the last couple of days which is a plan to ask the ecb for a 250 billion euro right off. they mentioned something about extending the statutes of the world's major central banks. it is unclear to me what that means, but should it be a relief to the markets? they already backed off from that yesterday already. francine: but was at least on purpose? , theyk: i don't think so have a agenda based on emotion and quick wins. writing off debt, that's a quick win, and emotional, not thought through on pragmatic around. think it is something when

you get populist parties, that's something to think about, but then you realize there are consequences to this. francine: i heard the parallels. a lot of market participants come in and say it is like greece. very aggressive, very left wing, and then he realized he could not do it. could we see it be a lot more volatile? and you are right, we still don't have a prime minister. could it take three years? paolo: a long time for sure. but i would not undervalued the prime minister issue. that they would not accept a second level prime minister. francine: but why not? they won the majority, they can put whoever. constituency, the prime minister is the president of the republic.

he indicates the prime minister to the parliament. so, what this prominent person will think is extremely important. can be adapted, it can be changed, because the prime minister will have his own view about many of these points on this very long list of items. we also have a bit of breaking news, unrelated to italian politics. fiat is said to end budget car production in italy. unexpected, unrelated to italian politics, but if you are a populist government, is the first point of call to go to fiat and say please don't and budget car production, that is a huge loss of business. probably they will, but fiat will take their own decision as a company

incorporated in holland, they make their own decisions. francine: what does it mean for the market overall? a lot of participants are saying they are used to it. i think like 52 governments in 48 years. do international markets care about who is the prime minister? patrick: i don't think it matters much for italy. francine: you are breaking paolo's heart. [laughter] patrick: i think it is if this is a populist wave that undermines europe as a whole. suddenly, you might not have the pragmatism i talked about, you have trying to appease voters with mandates based on pandering to easy wins, and that is the risk long-term. . patrick, you are worried that when it comes to a banking union, the germans freak out.

they look at it and think why would we ever agree to fund this time program. patrick: the thing is that germany has to find friends to. have u.s., russia, but you really have to appease the eurozone countries more than they did, because they don't have as many global allies. they have to be strong internally, so that may be an offsetting force where germany and they will compromise give into the prayerful demands and appease them a little bit more. will the italian economy significantly change? i thinking we had a recovery last year, what needs to change in terms of the recovery? does it need to be more domestically driven, so as not as much the exports, but people feel like they are part of the recovery? the economy has done well even this year, so unemployment is finally going down.

in total, good news. good things about the italian economy is the flow of exports which continue to grow, and i can see exports being the driving force of italian growth. now, i don't see why the new government should stop or make major changes that would make the italian companies export less, so i don't think this will be impactful. francine: what would you do with monte dei paschi? sharegoing to bring a price up, but it stands at 4% as we speak. paolo: i think it is unfortunate to say something about a company this hasrket, because been driving down not only the share price of monte dei paschi, but the whole banking sector in italy. i don't think this is really the priority for the government, and i believe the full

nationalization of monte dei paschi is not going to happen. besides, they are doing finally reasonably well, so there is no need to nationalize monte dei paschi. francine: that is my chart. we brought it back to 2017, but you can see the final chart. i don't have to write on these charts, but i will learn. do you like any of these italian banks? patrick: we don't have positions on them, french banks are where i prefer. let's capitalize, fewer bad debts, 4% dividend deals, you can get a little cheaper in italy, but i prefer the relative stability of france. francine: thank you so much. both stay with us. up next, we talk oil.

and concerns over supply disruptions push prices over $100. inflation from higher oil prices with patrick. this is bloomberg.

francine: here is ed ludlow. china has denied they offered donald trump a $200 billion reduction in their annual tracer. -- surplus. the chinese premier visited to try to solve a trade dispute and the minister said he hopes trade

disputes can be resolved. president donald trump has rebuffed his national security adviser, saying libya is not a model for north korea. donald trump said nuclear disarmament should follow the where gadhafi, after giving up his weapons, with later overthrown and killed. north korea said such comments were repugnant and threatened to cancel the summit. >> there was no deal to keep gadhafi. the libyan model was a different deal. this would be with kim jong-un where he would be there and running the country, his country would be very rich, his people are industrious. the european commission will begin putting a so-called blocking statue in place, to shield their countries doing business in iran from u.s. sanctions.

leaders rallied in defense of the broad-based international system, and vowed to confront the eu president called donald trump's capricious assertiveness. donald trump has said that the eu has been terrible to america on trade. broughts also said to back to brush off the latest brexit attempts. they said president donald told her it was too early to give any assurances because of the quote disorienting messages the eu is getting from london. warren buffett was called the financial weapons of mass destruction, now pope francis of all people is taking aim at derivatives. in a sweeping critique of global finance, the holy see singled out derivatives for particular scorn. the vatican called been a ticking time bomb. the unusual rebuke of

is in keeping with francis's skeptical view of unbridled global capitalism. global news 24 hours a day, i'm at ludlow, this is bloomberg. francine: let's talk oil. crude is set for their longest run of gains. it topped $80 a barrel for the first time since 2014, amid growing concerns of supply disruptions in the middle east and venezuela. so how long will this trend continue? paulos karami was once the chief executive of the gas giant any. let me bring you over to my chart, prices touching $80 a barrel. first of all, i'm going to ask a

market question and then we can go to the oil price focused question. at what point does the price of oil hurt consumption? is there like a correlating affect with how much emerging markets buy? its emerging markets and the u.s. which are exposed to the price of oil. if you get strong dollar in emerging oil prices and weak in emerging markets, that's where you get it. it is not biting the u.s. as significantly, but it is probably having an impact on consumption somewhat. you're getting lower taxes, higher oil prices, and tax prices are still winning out. follow, if you look at this , i do have shale producers

in the u.s. which is often crucial. are we heading towards $100 a barrel? paolo: i frankly don't think so. first of all, demand for oil is very strong. second, we have the venezuelan crisis and the iran sanction which would hit the offer. thirdly, we still have russia and opec curbing their production, which they might stop anytime. forth, it is true that shale oil can provide new balance for the markets, but this will take some time. they need water, they need trucks, they need any thing that will help. about $65 a barrel, we are now at eight dollars a barrel, shale oil becomes extremely profitable.

time only a matter of before shale oil -- it tone: but how easy is qualify the impact of trade sanctions on iran, a foreign investment in iran, and oil in iran? i believe that between venezuela and iran, there is roughly 1.5 million barrels a day missing in the market. still, remember that we are at 2 million barrels, which is the curve on opec and pressure production, which might come on immediately. francine: do you have to change your forecast because of a higher price of oil? patrick: not really. demand prices have been stronger than expected, and opec deals, there has been no cheating. i think there's probably some slack now for them to cheat, and that will offset iran.

demand keeps moving the way it has, that will lead to higher oil prices. i think you might see demand growth start to wait a little bit as well. oil price futures are around 60-60 five dollars a barrel, i think we will be in the middle ground between those two because you start to get higher opec production offsetting the iran deficit. francine: do you also see some cheating on the margins or saudi stepping in and raising output to make up for iran? yes, i believe that if oil prices move higher than $80, probably opec and russia will review their decision. francine: so that could happen fairly soon, in the next couple of quarters. thank you both for joining us. stay with us, we will talk a little bit about the markets.

this is what we know so far, it is a deal, italy's two biggest parties reach an agreement on their plan. we will also look at some of the times that are worrying on the market. this is bloomberg. ♪

this is bloomberg surveillance italy's two biggest parties have agreed to a final government plan. on terms,settled including a review of the eu rules, a call to end russians tensions, and a new tracks. that comes after months of horse trading and elections in march that produce no clear winner. and warning signs of trouble ,gain for global equities suggesting that investor optimism may be waning. jpmorgan says the move, which has yet to happen in the u.s. or europe, could be a sign that we are meant to enter bear markets.

you have a great chart which i want to show. it will definitely be on your gtd charts, but basically, you are short u.s. treasury's. the economy is growing, the fed is underlying the inflation gauge at 3.2%, a leading indicator, unemployment down below 4%, and the fed shanking their balance sheet. all of those things, you shouldn't have 10 year yields at 3.1%. if you are looking at 4.7 nominal growth, we are going into any environment where the fed is lowering the budget deficit at the same time they were lowering holdings. ofhink there are a lot people short treasuries, but that is dwarfed by what the central bank will be doing. we think inflation stays persistent, growth isn't going

over massively, and that leads to normalization, which we think three and a half by year end. peaked?: but have it patrick: probably, but it's at a good rate. and is a peaked slowdown from there, that's not terrible, still above normal growth. you had an output gap in the united states and europe that has been diminished, so that was a tailwind for growth. we are at the point where now we are starting to be constrained. any further growth creates the inflation that has been missing, so that's why think it will remain resistant. francine: paolo, you advise ceos, what are people concerned about? paolo: they are concerned that globalization seems to be under fire today, maybe that globalization has gone too far and that there are too many

people which have been left behind and the winners of the italian elections are the major .esults major executives of global companies love globalization of course, and are planning for a global world. after many quarters of growth, maybe one day, growth will stop. in fact, we do not see any signs of growth slowing down, but this is always a possibility after so many quarters of growth. thirdly, the political scene is complex. in the middlelems east, in asia, in venezuela. all of this is creating some international worries. francine: what is priced in geopolitically?

we were just talking about china, you can talk to korea,, they fact we don't know if the summit is going ahead. is the market ignoring it? i think the market ignores geopolitical risk, overreacts in the short-term, and if it doesn't blowup massively, it forgets about it. you get a quick overreactions to a headline, that it is forgotten. eventually, geopolitical risk will bite. people don't know when it is, and i think people have become complacent, because we have gone on for years without significantly impacted geopolitical events. market isink the overacting, because there is risk out there. a big round of applause. we have the patrick chart. happy friday. your 10:00 meeting, that is a patrick chart.

guys, thank you so much for joining us. hafford armstrong, with a fantastic chart. armstrong, with a fantastic chart. i, a fantastic interview with the 10kish president as year bond yields actually dropped. what we are seeing is central banks that may not be as independent as certain investors not. at least it was very clear in that president erdogan interview, watch the full on weekends starting at 5 a.m. tomorrow. we spoke about the economy. this is bloomberg. ♪

francine: unfinished business. italy's populist leaders say

they have reached a deal to form a government. the question remains, who will be prime minister? casts doubt on its $200 for trade.er we'll supply disruptions in venezuela and the middle east send oil to $100 a barrel? good morning. this is "bloomberg surveillance." i am francine lacqua in london. tom keene in new york. this is taking a toll on italian banks after there was chatter about redefining monte paschi. ecbre seeing no mentions of or the right down. tom: we have seen the yield move out. that was interesting. in the markets this morning, the real focal point for me is the yen.

francine: that is a big one. let's get to first word news. here is sebastian salek. a big branch in the trade dispute with the u.s., beijing has offered to cut $200 billion from its annual trade surplus by increasing imports of products. negotiators meet again today in washington. president is rebuffing his own national security adviser when it comes to the future of north korea's nuclear weapons. the president rejected john bolton's call for a so-called libya model. gaddafi give up his nuclear weapons and was later killed in a popular uprising. eu leaders meeting in bulgaria cleared the way to put so-called blocking statues in place designed to shield european

who do business with iran. the company is fine swedish small business platform for $2.2 billion, guitars biggest deal atar's- kate tires -- q biggest deal ever. 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. this is bloomberg. tom: thank you so much. the yen is moving. i will drop that in here. it shows quiet in the market after the launch was last couple days. -- tumultuous last couple of days. weaker japanese yen within a quiet market. francine: i cut you off because i am so excited.

i am all over the place. tom: it is the wedding. it is the wedding. francine: the government, the wedding. tom: i just a little fancy for the wedding. francine: you are very fancy, very dapper. i am sure you will get an invitation. tom: extreme waiting. waiting for the invite. francine: it would be brilliant to actually see you maybe walk her down the aisle. what was on asia is a little mixed picture. that is filtering through to europe. the dollar paring some of the gains for the u.s. 10-year treasury yields after reaching the highest level since 2011. gold is steady after breaking below $1300 an ounce earlier this week. finally, we can talk italy.

an hour ago, the five star leader said the final government contract was actually put in place. former the time prime minister said they were right not to be too concerned about market reaction. >> they are right and not being too concerned about market reactions now. wrong if they undervalue these market reactions. francine: for the latest on ome bureau chief joins us. we know there is a 15% tax for companies and people. they did not ask for this ecb write-down. is that a relief for markets? >> i think it is a relief, but there is still plenty that is disturbing. they kept the scrapping of the pension law, which was a huge

issue. it helped balance the budget. cuts,ept some type of tax which is extremely expensive. citizen income is in there. all of those plans will disturb the market in the long run because it is unclear how they will pay for this. francine: why don't we have a prime minister yet? >> they cannot seem to agree. it will be interesting to see how this develops. they will not put that in the program. they will have to go see the president and talk it over with him. he has said many times, i am not a notary. i need to talk to you about this, and we need to agree. they will see the president, presumably next week. they say they will talk to their voters, and they will vote online and in the piazza for the league. tom: the tsonga continues. where were we be -- saga

continues. where will we be in six months from now? that given howg contorted this process has been, they could have said give us 10 because it is a complicated program, i am worried that the new government is to be very chaotic. they have a very small majority. any confidence vote from every anfidence vote is going to be drama. they need to remain very united for this to work out. francine: the other thing is how much can the plan change depending on who is the prime minister? will it be a yes man or yes woman? how much influence in the prime minister have? >> a lot of influence. a lot of it depends on who is the ministers.

there are so many things that could go wrong or create problems, and then how will they explain that to voters. they have also discussed this thing they will share them a couple of years one party, a couple of years the other party. italian governments don't last couple of years. it seems like whoever is second may not get to govern. francine: thank you very much. for more on the latest in italy, visit our live blog if you are a bloomberg user. they have spectacular quotes from investors and really cool graphics. let's bring in wells fargo asset management global chief investment officer. thank you for joining us. spreadsook at italian and bonds, is there not enough

anxiousness on the market? or is there too much? >> i would definitely say not enough anxiousness. the markets have been complacent. when we look back at early march and look at the results of the election and the swing away from establishment to the political extremes, that should have been a wake-up call to the markets. there should have been a price we risk -- re-risk. qe policy is locked in to cessation this year. francine: the you agree? >> no. francine: perfect. >> over the last few weeks, we had fears of a euro referendum. not going to happen. of a prime fears

minister from one of these coalition bodies. not going to happen. i think it is going to stumble along as a time politics has for decades. i think the opportunity is in the fundamentals. ,he economy has been recovering budget deficits coming down, and the bank sector has been recapitalized and is cutting costs. there is an opportunity. tom: that's what i wanted to go to. where is the opportunity in europe? there is so much news flow, political, economic, all of this, where is the opportunity? >> domestic value in europe, particularly in financials. we are overweight insurance companies. they are very exciting to us. they have massive access capital. the largest reinsurance company in the world has access capital of 25% of its market cap.

it is fine back 4%. each year. % of stock each4 year. what do you buy right now, cash dividend or dividend growth? >> we are much more about cash backing. we want to see dividend growth, but we are not long expensive defensives where you see dividend yield. we are long cyclicals with dividend yields. balancebacked up by sheet. we have cyclical outside as well. we don't want to be wrong expensive defensive. francine: thank you so much. james abernathy

staying with us. barry eichengreen. far the most significant story of the day, i urge go,yone to follow tlive this concerns just how this government operates. ofhave mentioned a committee conciliation. one of the biggest banks in italy falling 5%. we will have plenty more on italy throughout the morning. this is bloomberg. ♪ rg. ♪

>> this is "bloomberg surveillance." let's get to the bloomberg business flash. changes are underway at a major fiat chrysler factory in italy. they will unveil a plan next scrapping has them two budget models for upscale cars. $5.4ays has agreed to buy lloyd's.f -- from lloyds has steadily reduced its presence in ireland. toshiba is on its way to selling its memory chip business for $18 billion. toshiba says the sale will close on june 1. it is trying to repair its balance sheet caused by billions

of losses on nuclear energy. china has denied reports that it has offered president trump a $200 billion reduction in the trade surplus. joining us now is bloomberg's executive editor for greater china. thank you for joining us. do we have a deal? did they promise to hundred billion dollars? what kind of timeframe? more it is a little nuanced. the industry spokesman said today, to my knowledge there was no offer. than a little mushier first glance. we have had other signals that something was forthcoming. china called off its anti-doping program on u.s. sorghum. that was going to hurt u.s.

farmers. there are signs of peace offerings. francine: china is now casting doubt on this trade deficit offer of $200 billion. if it does come through, we understand it was leaked, and now they have not finalized the details, if it were $200 billion, what with the u.s. offer as a counterpart? is there a link to zte? zte is very likely part of some agreement that was reached between u.s. and china. for have obviously asked several other things in china, asking for equal treatment for chinese companies operating in the u.s. it is hard to understand exactly what the u.s. might give in return for that reduction of $200 billion.

help us with the x-axis today. the republicans and president ine an x-axis today november for the midterm elections. for thethe x-axis chinese? can't they just wait and wait for these negotiations? thing ishink the zte interesting. if you look back at that tweet by donald trump saying allowing jobs, that too many was after he spoke to president xi. i think the repercussions are pretty clear, and what the chinese don't want is anything destabilizing the economy. they also don't want to be seen giving into u.s. demands.

francine: thank you. john liu. now, dale witter and james abernathy are still with us. dale, when you look at trade tensions, are they more likely to escalate or deescalate? what do you make of the fact that there was a report, and then it was denied? dale: this is not going to be a trade war. it is a war of words. no one wins the trade war. u.s. companies don't win. u.s. employees don't win. midterm elections are coming up. this is a war of words. we should be taking advantage of the opportunities. we are long domestic facing chinese companies. tom: think you are much. we appreciate it. we will continue.

guy johnson with the next ordinary conversation. we will give it to you in its entirety this weekend. this is with mr. erdogan in turkey. this is the interview that moved markets. see it in its entirety tonight at 9:00 p.m. in new york. this is bloomberg. ♪

tom: barry eichengreen with us in the next hour. i am tom keene in new york.

we will do economics with professor barry eichengreen. with all this turmoil, dale winner with us and james abernathy. turmoil, whatis does it mean for my retirement plan? how do you attack and just a conservative portfolio for long-term given the noise we are seeing in em and from chairman powell? james: that does depend on what you are time horizon is. the longer you have until retirement, the more you can withstand this volatility and use it as opportunity. on the back end of last year, this is what we were expecting. putof the previous guests up a chart, and he was talking about the role of waning qe and

increased treasury supply. that whole environment we have been in where central bankers have gone out of their way to drive the miss pricing of assets, crushed volatility, we know from previous experience that finds its way into all sorts of notes and crannies in markets. we are seeing the first stage of rolled back.g we are likely to have a longer time of heightened volatility. it is not something to be afraid of. there is still opportunity out there. we're talking an underlying global economy and u.s. economy that is strong. you were talking about the value of u.s. equities. is it the value of the coupon? are we going to click the coupon?

dale: i would suggest that maybe this is the end of that great 30 -- bull market in bonds. we believe there is going to be a leadership change in equity markets, irritation that is very -- a rotation that is very healthy. we believe from the u.s. dollar to foreign currencies. fund, a u.s. dollar-based but we think the dollar is long-term decline. the dollar was the biggest short of one of the traits this year. this is a short squeeze. the fundamentals are dollar weakness for multiple years from here. you want to be long foreign currencies. francine: what is the signal for global stock markets? is there one? dale: what is the biggest risk?

inflation supplies in the next six to 12 months. i think there is a big argument for that with wages where they are, full employment in the u.s., japan, we are going to have some pressure. is the fed behind the curve? the market will predict that. francine: thank you. dale winner of wells fargo and james athey of standard investments. coming up, russia's president speaks alongside his french counterpart. japan's prime minister and the imf director there as well. ♪ . ♪ retail.

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near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. francine: this is "bloomberg surveillance." we are live from london and new york. the sun is out. there is quite a lot of talk of

a certain royal wedding in windsor and whether the sun is out and if they will have an open carriage or closed carriage. tom: i believe prince charles markle downghan the aisle, which is diplomatic and appropriate. i will be at a wedding party tomorrow. i will be jet-lagged. that will be extraordinary. here we are with first word news. >> so ready. china casting doubts that it is offering to reduce its trade deficit with the u.s. by $200 billion by increasing importing of american products. a chinese official says no such offer was made. the size of resume talks in washington today. withtrade representative

canada said they are nowhere close to a deal on nafta. >> in the last few days, i've spoken to the treasury secretary of the u.s., the mexican finance minister, we are all engaged in this. there are people at the table dealing with the issues we know we need to deal with. there are other people leaning in to make sure we keep the progress going. it is hard to know how close we are. ryan hasspeaker paul said yesterday was the informal deadline if the administration wanted the deal wrapped up by this year. the leader of the italian five star program says the new government will include tax cuts and a guaranteed income for the poor. monitor theo situation, of course. it is changed from what has been

happening recently. it is known by everyone. >> special counsel robert mueller has indicated he is willing to limit the scope of a sit-down interview with president trump according to mr. giuliani. 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 sebastian salek. this is bloomberg. francine: thank you so much. brent oil futures are heading for a six-week advance after reaching $80 a barrel the first time since 2014. this is after shrinking supplies in venezuela. energy analyst at jefferies.

jason, are we going to $100 a barrel? >> i think there is a real possibility of that, and it will primarily dependent on the supply risk that is emerging at the same time. if iranian sanctions are put into place and venezuelan production keeps declining, there is a real possibility we will see $100. francine: what happens, do shale producers come back online with full force, or designee some of the emerging markets and the u.s. consumes less oil? >> i would certainly be concerned about demand if we go back to $100 oil. what we have seen the last three or four years could start to slow down. in terms of u.s. producers, i would point to some real logistical constraints in the permian basin that would

prevent the u.s. from responding untilto that price cycle the last half of 2019. francine: what about the impacts of president trump's withdrawal from iran on oil? >> there is essentially a 180 day timeframe to allow the industry to adjust. i believe when we get to the end of that time frame, we will see at least one million barrels a day of iranian exports drop away. before the sanctions become formal, i suspect we will see refineries switch away from iranian crude. by october, there would be half a million barrels a day less of iranian exports. francine: what does that mean for the saudi's? do they raise output to make up for the lost iranian oil? >> the saudi's have made

overtures to the market that they will make sure the market is adequately supply. i think we will learn more at june 22 at the next opec meeting. i think they will at least partially replace the lost iranian exports. the issue becomes if the saudi's have ramped up their production, there is no spare capacity in the worldwide system. francine: do you know what price the russians and saudi's are targeting? >> there is theoretically not a target price. what they have targeted is a rebalancing of the market. i would say they have achieved that at this point. there is a real possibility on june 22 that opec and russia, with the message that they have achieved their target and will relieve some of the production cuts that have been in place. tom: that is right where i wanted to go. fornted to congratulate you

a lack of hysteria at $30 a barrel. i thought you were very measured a year ago. i want to discuss the optimal price of oil for the producers. around a fancy calculus supply and demand. your magic is you actually look at the companies as well. where is the optimal price of oil for the producers? >> it is a difficult question to answer with a single number. i would say that the company's high cover, the big integrators have reduced their cost structure to where they can make money at 50. where i would be concerned at higher prices relates to the elasticity of demand, somewhere in that $70 range is probably a good balancing point between providing adequate returns for the industry and continuing with reasonable

demand growth. tom: i looked at an oil producer in america, and the answer is they are not yet back at their valuation at $100 a barrel. returnsextrapolate out based on sustaining $80 a barrel or even driving higher? >> i think there is plenty of room for these equities to move if we can sustain $80 a barrel. i would be looking for probably a 20% uplift and the integrated companies that i cover. they tend to be lower beta names. there is quite a bit of return incremental. tom: it is friday. i have got to make money to pay for the wedding watching this weekend, the wedding party in brixton. what is my single best buy to make some money? >> i would buy chevron. it is the cleanest story in the

group. you get a repurchase at the back half of the year. i don't cover the higher beta names. if you really want to make some money, you might want to look up the market cap. tom: i love it. it is cfa jargon. low-beta name. barry eichengreen with us in the next hour. your morning briefing, coast-to-coast. bob dylan and karen moskow, they are wedding free. bloomberg radio and boomer daybreak. ♪

francine: this is "bloomberg surveillance." tom and francine from london and new york. let's talk about japanese inflation slowing for a second straight month in april, the boj struggling to hit its target. lower than estimates. athey arer and james still with us. we are looking at something that is quite interesting, which is maybe inflation in japan could be the first signs of something turning in the markets. you have this triple whammy of normalization from the fed, possibly growth worldwide, and a little geopolitics in the mixture. absolutely. the number of influences are myriad because the japanese yen has this role as the risk off currency. with respect to the japanese

currency, they are trying to resolve structural problems with cyclical policy. we are learning quite acutely that we do not understand inflation anywhere near as well as we thought, and the simplest it model of looking at unemployment and potential growth is not going to give you much steer over short or long periods of tiem. -- time. we have really distorted some of those relationships. even if they are able to generate inflation, are they able to generate sustained wage growth? i am not convinced because this is a nominal economy that is shrinking. francine: is there any where that can raise rates at the moment? but that isare, because they have to. francine: i was thinking for the good reasons. dale: given where we are, why is

it going up for the right reasons? the u.s. economy is strong, the global economy is strong, and we have moderate inflation. that is a good place to be. even though the fed might hike another two or three times, the 10 year will keep going, and that curve will not convert. if you have never had a u.s. recession without positive real rates, and that fund rates are negative right now. james athey, i want to go to you, on japan, this is a nominal economy. this year, you cannot really see it on tv, but it is so important i want to bring it up, nominal gdp, 2% last summer in japan, now withell, and 1.4%

inflation coming down. if japan is a nominal economy, n't isn't the u.k., why is america, and why isn't china? james: basically, the japanese average age is around 48, which is close to retirement. you get increasing pressure on a smaller younger generation to support the older generation that is not able to work. that means there is a smaller pool of working age population to draw from. that means if you are a company looking to japan, you cannot benefit from the growth of the overall pie, so you have to win by market share. that creates a different dynamic. tom: extrapolate this to other central banks. is the theme for the remaining part of this year, inflation is just not going to be there like all the predictions are? dale: i don't think so.

i think it is the other way around. i think inflation is coming back. it is so volatile. we have soft patches here and there. look at global inflation. over the last 10 years, we have gone from deflation to disinflation. you have the bear market to moderate inflation around the world. this is a good place to be in a long-term cycle. i think these are very volatile numbers now. look at where commodities are year-over-year alone. wages are actually going up in japan year-over-year and month over month. we need to be very careful about that. i think there will be positive moderate inflation, and central banks around the world will act accordingly. that is for the right reasons. francine: we are not seeing inflation and wage growth act like it is supposed to hear in europe. pressureo wage because of lack of talent that certain companies need, people fearing for their jobs and not

asking for a wage rise. curve doeshillips not work until it works. let's wait and see what happens. germany is at full employment, the biggest economy in europe has a shortage of workers. let's see where that goes in terms of wage inflation. these things can take time. we have major economies in the world at full employment, germany, japan, the u.s., the u.k., canada, all at full employment. we believe wages will start to go up and the fact inflation. francine: we were talking about the german economy overheating, has that help the -- now peaked? dale: one of the reasons the pill curve has looked broken is because we have full employment. see workers from high

unemployment areas such as italy moving there. i don't believe that has happened. i think the behaviors we have observed are not quite the same in economies that are increasingly shifting to service sector dominated. productivitysmith theory works well when you're making widgets. it doesn't work so well in the service industry. that's called dynamic is different. it is not nearly as long lasting. you have to allow that to feed into the economy slowly. i think australia, the mining boom, you could see how service wages eventually increased, but it did not happen on the short-term. is the fed behind your optimism on inflation, nominal gdp? can i get you in trouble? you haven't done this in 30 years. is the fed behind? dale: not now, but maybe next

year. if inflation does surprise them as we think it will do over the next six to 18 months, the fed is behind the curve. i think it is one of the biggest risks for a short-term risk and equity markets. right now, i think it is priced adequately, and will we are seeing is coming through slowly. that is a good thing. francine: i am sure tom is making an inflation chart as we speak. tom: i have a nominal gdp chart in japan showing the desperation of the recent rollover. show,e invented the francine, this is what we like. two really smart guys who disagree. they only agree that the wedding tomorrow will be emotional. francine: very emotional. they don't agree on everything, so we will take bets on who designed the wedding dress. tom, i know you can take a bet

on it. i'm not sure james and dale can. we will have a crack at it. james athey and dale winner staying with us. we have a chart showing the tv . tom has a great one coming up. i am expecting it. this is bloomberg. ♪

>> this is "bloomberg surveillance." i am sebastian salek. ubs is looking for a way to offset the industrywide slowdown in trading. on swiss bank plans to focus growing its merger and ipo advisory business. aluminium maker rusol still has problems one month aluminum u.s. softened tariffs. thinkers will not deal with them because of u.s. sanctions. one of the multimillion dollar

paintings my problem picasso was damaged just days before it was met to be listed by christie's. there is no word on when the painting will be repaired. francine: thank you. i have a painting that cost me like 100 pounds or so, and we still something on it, and it broke my heart. can you imagine having a picasso, like everything in the world? tom: everything in the house has slime on it. wait for slime. there will be slime on the sculpture. there will be slime everywhere. has a teenager that is very into slime. let's get into brexit and on the spilloversome kind of with the italian elections depending on what government and prime minister they have whether they will get a better

or worse exit deal. with us are dale winner and james athey. customs union, ireland, we don't know what we or the government want, or what the economy will do in two or three years from now. >> i think we know ideally what everybody wants. everybody wants the best, but the best for us is not necessarily the best for the eu. at the moment, the eu is negotiating with itself. of stenciling, this issue the customs union, which has come up as a way to deal with the irish border issue, the steps away the single market regulation is why there would need to be a border between the u.k. and eu. being in the customs union but outside the single market, that means you have to have full regulatory reliance, which means you might as well be inside the single market. i don't think that is the way we are going.

it is important that point you made about italy, because i think it will have an impact. francine: i don't know the correlation with italy, but will we see bastad brexit, or is it not the way to go into u.k. assets? weak u.k., but we have no domestic exposure. consumerit will affect confidence, corporate confidence, and likely a slowdown in the u.k. we are long u.k. exporters and hedged sterling. sterling is a mechanism for the weakness in terms of confidence. there is no solution on the horizon for brexit. how long is the transition going to be? i think it will be kicked down the road for many years. this is damaging for the u.k. domestic economy and sterling. tom: thank you so much. this has really been a wonderful hour. dale winner of wells fargo and james athey with standard

investors. wonder if all -- wonderful what we heard there. without question, our interview of the day on bloomberg surveillance coming up in the next hour, barry eichengreen of the university of california at berkeley, professor i can green out with a new book on populism. barry eichengreen on the growth of 1998 and mexico and ecuador. barry eichengreen in our next hour. it is from new york to wedding ,arties at 4:00 a.m. uncountable in the distance. ♪

♪ . the yen morning

grinds ever weaker and oil is near $80 per barrel. purely a misreading. are nowhere near close to a deal, that would be mexico and nafta. there is a wedding. the mother of the bride will have -- with the mother of the groom. the wedding cake is focused on sustainability, seasonality, and flavor. good morning, everyone. this is "bloomberg surveillance." we're live in new york. and francine lacqua is in london. i guess we could go on about the wedding, but there are some really interesting headlines out. i have got royal wedding favor. francine: i know that you do. tom: i am looking at these headlines out of italy. this is important.

translate this, francine. anytime you see the word hope, you circle it with a big yellow pen. paschi -- monte paschi, what is that about? francine: for our listeners and viewers who are just joining us, we have received a text which is the grievance between the league and the five-star about how they will govern italy. they have each been talking about monte paschi. this was the devastated bank under government control. it is listed and the government still has a big stake in it, which is why anything that these two gentlemen talk about has a big impact. yesterday monte paschi was down 8% because they suggested that

bankcould re-nationalize -- the bank. today it stands at 3.1%. saying, whatle are are you talking about a bank that is actually ipo, because anything you say will hurt shareholders. tom: here is sebastian salek with our first word news. >> china is offering a big olive branch to the u.s.. a trumpg to administration official, beijing has offered to cut $200 billion from its trade surplus. that was one of the demands made by a u.s. team that went to china earlier this month. negotiators meet again today in washington. president trump is rebuffing his own national security adviser when it comes to the future of north korea's weapons. -- johnjected bulletins

bolton's calls. north korea blasted bolton after the comments. the european union is united after sanctions from president ran.p against i this is to shield european companies doing business with iran from u.s. sanctions. how has found a way to expand in europe and latin america. the company is buying the swedish company izettle for $2.2 billion. it is the house biggest deal er and will help it compete with square. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: we appreciate it. equities, bonds, commodities,

very quickly. euro is under 118 and oil is still elevated. francine? francine: i am looking at treasuries. some movement with the dollar. euro is not moving on the back of those italian headlines. overall european stocks are slipping it touch. tom: let's get to the stories of the day. of our two correspondence with us. i guess there is no surprise to this. it is the discourse of washington and the abruptness to the discourse of china and the authorities. how abrupt was abrupt that you heard overnight? >> something of a reality check out of beijing. we had a spokesman saying that he cannot necessarily confirm that a deal was made. it was not an outright denial,

just a casting of doubt. nuances of any agreement have yet to be worked out. kevin would know much more from the washington side. they are willing to make an offer on goods and services. it is a question of whether the u.s. is willing to accept that. enda, what would china have to offer the u.s. to actually get china to agree to a $200 billion deal that is now up in the air? edna: i guess there are several things. zte is in the mix, an expectation of an fusion -- easing of the sanctions is there. in return, it seems china is willing to make a tempting offer, a very headline grabbing number of $200 billion in terms

of goods. say it is anomists very high figure and it would be quite a task to shrink that much of the trade deficit in that short of a space of time. it will be interesting to see the details that come out of washington later friday. francine: do you think we will have details later today? edna: i think at the very least there is some expectation that there might be progress on the good side. china has eased up on its probe of import of u.s. --. anetheless, even if there is meeting of ways in the goods and services side, the broader are about china's state-sponsored push for a high-tech economy. those concerns are not going to be resolved in these talks or

anytime soon. tom: thank you so much. we greatly appreciated. kevin cirilli in washington. let's get a briefing. the art of making a deal with the president. the president has a methodology. that is all about a bluster. that with all respect to the president of the united states. that does not work with the chinese, does it? >> you have seen in a short time, trumps negotiations evolution with the chinese. steven mnuchin and has emerged as the point person to deal with the vice premier. you have got a lot of ideological diversity from the peter navarros and secretary mnuchins of the world.

it is going to be up to president trump to carry that forward. you saw that with zte. tom: i love what you say. that was brilliant, about doing get and learning it in real-time. what is the president learning in real time dealing with special counsel mueller? kevin: i think the bottom line is that bob mueller is not going to be influenced by the political news of the day. he is operating on his own timetable and timeline. it has as of yet to be sucked into the political drama, or swamp of washington dc. tom: that was kevin cirilli, our chief washington correspondent. we are thrilled to bring you to some of what we have observed this week. julia coronado, president and founder of macropolicy perspectives.

bring it up right now. this is the dax. julia does not really loved ithe dax, because when she was at bnp paribas she nailed it. now?ccurate are the dots do you believe this malarkey? julia: i think even it chair powell saiden chair we do not know about 2020. what we do know is 2018. that is three or four rate hikes total this year. that is a reasonable estimate. hown that, it depends on the u.s. and global economy evolves, how the inflationary situation evolves. francine: has world growth

picked -- peaked? julia: yes, i do think it has. everybody,- almost with the exception of japan is pulling back stimulus, the u.s., china, europe. we are already seeing the global manufacturing indicators moderate. that is not terrible news. that is to be expected, but that also means harder trade-offs for policymakers, and the fed in particular. francine: so this is which and our, right?inh what does it mean for overall grid -- risk in the market? julia: what we're seeing is not wage and salary inflation. that tends to be a demand -- kind of inflation. we will see how that plays out.

i would say that the rise in oil prices probably dampens consumer purchasing power a little bit. a kind of boosts the energy industry and investment in the energy industry. it is probably not terribleness. if we go further, we will worry about how the u.s. consumer goes further. , the united kingdom, europe, there is a trend of dampened inflation. is that what july and october of going to bring us? so that you are wrong on three or four rate increases? julia: i think we are more han four, see three t and inflation is exactly the reason why. we are very concentrated on health care, which tends to be cyclical. beyond that, firms do not have

employeesicing power, do not have a lot of wage growth. i am not saying that cyclical overshoot that the fed is hoping to see. tom: julia coronado, i am thrilled you're with us today. let me show you the real world of health earnings come across. i.c. is the actual newsfeed of the famed bloomberg headline. this is john deere, doing a nice beat. these are the actual numbers that we see and then we go in and do bloomberg first word, and down there somewhere is a press release. there you see the real world of how we make the sausage, on a friday here at bloomberg. francine lacqua in london, tom keene in new york.

barry eichengreen is coming up soon. stay with us. this is bloomberg. ♪

♪ this is "bloomberg surveillance." let's get the bloomberg business flash. major changes on the way in fiat chrysler factories in italy. they will unveil a plan to have budget models two in favor of more upscale cars. barclays as a great to buy a portion of irish residential mortgage portfolios from lloyds. lloyds as steadily reduced its presence in ireland after it was

left with bad loans following the financial crisis. that was a bloomberg business flash. francine: now to italy, where the five-star leader says his party has reached an agreement to form a government with my tail sell beanie -- with the league. the next government needs to work to build global partnerships. it is crucial for the new italian government to be able to build up alliances, informationally, particularly in the eu context. i would suggest to them that they should be moderate in the presentation of their disruptive objectives now. francine: that was the former italian prime minister, mario monti. we have a guest joining us.

there is no mention of the ecb. there is mention of a flat tax of 15%-20%. there is mention of a new social contract, mention of sanctions. talk to me about the banks. talk to me about monte paschi. it lost 8% yesterday and is losing 4% today. there are some areas which actually would look prior the agreement -- require the agreement of the european union. they are radical, but will need a lot of work at the eu level to be implemented. paschiemember that monte has been nationalized just a few months ago. the italian government owns roughly two thirds of the share. what did we hear yesterday? we heard a senior member of the northern league, one of the

economic advisers saying that they will look for a different strategy, meaning they will no longer close branches. that implies that the plan which is now being undertaken by management, with some success, but it is not looking that realistic anymore. investors are wondering what will happen to this bank and they are not liking what they see. level, the changes they are recommending, for example they want to change the regime that makes investors pay for a bank failure. all of that will be hard to implement. otheris opposition from northern countries like germany. francine: i want to go back to the possible names of the prime minister. whoever becomes prime minister will have a significant say on this program., so it could also change. >> the program is a draft.

that has a list. it is the italian constitution. 81,e is a clause, clause which says that italy should balance the budget over the medium run, and over the economic cycle. obviously we have seen an estimate from a former imf official saying that the measures in this program would cause a north of -- cost north of 100 billion euros. that is very hard to square with the principal in the constitution. that would be quite a major step. the other thing which is the president could do is to ask for guarantees over a number of ministers, so we are looking at defense, economic affairs possibly. most importantly, this is a government plan without the

prime minister, which is really unusual in the italian case. the president will want to know who will execute this program. league needd the to have a good answer to give to the president when they meet him, probably on monday. tom: thank you. we greatly appreciate it, from rome. we will continue with julia coronado, and coming up soon is barry eichengreen. this is bloomberg. ♪

tom: do you anticipate that the u.s. would -- >> you will play a role in monetary policy going forward? is that the big change? >> yes. >> what is going to happen in the upcoming election on the 24th? foreign language]

>> thank you for taking the time to join us at bloomberg. tom: good morning, everyone. this is "bloomberg surveillance." with us now we have julia coronado. we are thrilled that she is with us. we want to get ready for barry eichengreen and i want to take you back to academics. barry eichengreen is a giant for people like you and me. please explain the deficit and why certain presidents think it is a bad and evil think. -- thing. julia: it is really much more of a political judgment than an economic judgment. targeting a dollar amount on the trade deficit does not really make a lot of sense on we are thinking about

flexible currencies and so on. what we see now is a political backlash. the people who sense that they lost from trade are placing pressure on politicians to bring jobs back. tom: down the hall from barry are two men who say that they broke the --. look, i don't know if you recall, in nafta there were adjustment programs but in -- put in. there are losers from. trade there is an uneven -- losers from trade. there is an uneven distribution of the gains and losses. the global supply chain is very

difficult to reverse. it would be very disruptive to a competitiveriving, u.s. corporate sector. the answer is not necessarily to look to the past. tom: that is julia coronado, from macropolicy perspectives. barry eichengreen is with us and his new book is always important, but frankly is a book of the year candidate. barry eichengreen on populism. it is global and dense, and highly readable. must watch, barry eichengreen with julia coronado is next. ♪

♪ wedding and the weather up in the air. francine lacqua, there is questions about the coach.

how will the couple arrived at the wedding? francine: carriages. tom: carriages, excuse me. prince charles will walk meghan markle. i'll -- down the aisle. francine: that is right. the palace released a statement that meghan markle asked prince charles, and he gladly accepted. angle, a a bloomberg lot of different reporting in the last 24 hours on the cost of the wedding. the answer is a lot of money. that is usually what happens at weddings. by theurity paid taxpayers and much of the rest paid for by the royal family. it is our in depth team coverage of the royal wedding. we have first word news. >> the u.s. and china resume trade talks in washington today. china is casting doubts on reports of a major breakthrough. according to the trump administration official, china billionsing a $200

trade deficit cut. representative says is nowhere close to a deal on nafta -- the u.s. is nowhere close to a deal enough to. oni have spoken to -- a deal nafta. >> i have spoken to --. there are people dealing with the issues. that are people making sure we keep the progress going. it is hard to know how close we are. >> house speaker paul ryan has said yesterday as a formal deadline if the administration wanted a deal ratified this year. there has been a shooting at a golf course in florida owned by president trump's company.

it took place in a lobby of the trump national golf club in miami. the suspect has been hospitalized and one officer was injured. federal counsel robert mueller has indicated he would be willing to have a sit down interview with president trump. he says he wants to wrap up negotiations by june 12. that is when president trump has a meeting with kim jong-un. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek and this is bloomberg. tom: thank you so much. week ineen a tumultous number of months, which means it is a good time to talk to barry eichengreen, professor of economics at the university of california, berkeley.

economists turn to barry eichengreen. he is out with a new book. francine lacqua has the sole copy in existence in the united kingdom, scheduled to be a wedding gift for meghan markle and prince harry. it is on the shortlist for book of the year. why did you write about the populace temptation? why that same? -- theme? barry: i was prompted to write the book by brexit and donald trump. i think i only write a book when i am upset about something. there were two things -- momentous events that raised questions about the future of the united states and the european union that prompted me to think about what voters were reacting to. tom: you right densely. densely.a -- write

there is a sentence when you say that the mainstream media dismissed trump as a buffoon. when did the other leads give the message about the desperation of the new populism? i think the of leeds have received the message by now, but have not formulated a response. in the united states we still ofe a deep suspicion government that prevents us from addressing those concerns. in europe they have the democratic deficit at the level of the eu. professor, can you add a chapter on italy? we have a government and we do not know who the prime minister is. they have put the plan on facebook. now they are asking for to vote through twitter on whether they want that plan or not. barry: the final push and i

asked in the book is: who is most at risk of a populous reaction between the united states and europe? the problem with europe is the european union, which is an obvious populist target. that is what has brought these fringe parties together. francine: how do you address it? these are technological advancements that ms. place people. people -- misplace people. people are better off, but feel they are not benefiting when looking at the peers -- there peers.s -- their is that a fair assessment? barry: i think it is. in the united states, suspicion of government goes back to thomas jefferson at the beginning of the 19th century. we have had a deep racial divide

in the united states for two centuries. those kind of things prevent us from responding to those concerns. rry, in your book you talk about the republican party tariffs.sts -- you talk about abraham lincoln. of is the tariff debate abraham lincoln different from that of donald trump? from abraham lincoln up to world war ii, the republicans were the party of protection. it was only after the war when u.s. manufacturing had come to dominate the western world, and when free trade supported our foreign-policy goals that the republicans flipped. i think an important aspect of trump is that he is not committed to an internationalist foreign policy and therefore

does not have to worry about trade relations. tom: we can talk to bury i convert about strong dollar reality and we can also talk about it with julia coronado. help us out. you have to predict a further strong dollar? julia: yes. soter the global economy was strong that the fed was able to move along its rate hiking path with a weaker dollar. that will not be the case this year. each rate hike will probably brink some further tightening -- bring some further tightening through the dollar. we had the domestic stimulus pushing our economy, and meanwhile stimulus is being withdrawn broad. i think that spells dollar strength. francine: central policies, can all of that cash in qe contribute to populism?

julia: i think of it more as a reaction than a cause. i don't see qe is a cause of anything. the financial crisis it self you could argue is the cause of populism. we are dealing with a slower growth demographic reality globally. that slower growth is very frustrating for people. the first thing that you do is open the spigots of credit. we did it, europe did it, and china is doing it now. than you have a crisis and overhang that you have to do with. i think the underlying reality -- economiese an are growing slower, and that is difficult for people to accept. francine: going back to the 1% or 10%, maybe central banks did contribute. i don't know if it was their job to foresee yet and maybe prevented come but their part in it,ust prevent -- prevent

but their part in it is just undeniable. barry: the financial system is for the congress, for the fiscal authorities to deal with distribution concerns. this linkage of monetary theory into our political matrix that we live in is very important. as you study this, as you have done your work over the decades, this experiment of quantitative easing, quantitative tightening, it has a social cost. what is it? fate: the social cost is in the central bank has eroded. when they begin to utilize unconventional instruments. secondly, people see that the return on their bank accounts goes down.

they do not say that the economy is recovering. central banks try to communicate the reasons for what they are doing. we have gone through a decade were central banks or the only game in town. all responsibility for policy rested on the shoulders of central banks. that situation is not sustainable. francine: this goes back to barry i can break -- barry eichengreen's classic. we are going back to a gilded age. is that the price of this balance sheet adjustment? to be have a gilded age -- do we have a gilded age? julia: that trend toward inequality will was -- inequality was well underway before. it was a blunt instrument, they were following mandates, and did not have a lot of choices. it is not their job to deal with

distribution, as dr. i can green mentioned -- as barry eichengreen mentioned. it will not be monetary policy that turns the tide on inequality. we are going in the wrong direction. tom: thank you for joining us with, julio coronado macropolicy perspectives. we will continue with barry eichengreen. must talk to him about the international economics, president trump, and president-x i. bloomberg daybreak. stay with us. this is bloomberg. ♪

♪ >> this is "bloomberg surveillance." in malaysia, this politician told us he cannot say if the former minister will be put behind bars. keeping -- he does think that najib must face justice. he spoke with bloomberg. [indiscernible] what he squandered for the people of this nation, he has to answer. >> he spent more than three years in prison before he was released this week on what he calls politically motivated charges. you can catch the full interview on sunday. ubs is looking for a way to

offset the interest rate -- industrywide slowdown in trading. -- -- ubs says that a deal is critical to growth. and number of banks -- a number of banks will not work with rusal anymore because of u.s. sanctions. nn'sof steve wy multimillion dollar things from pablo picasso was damaged days before it was set to go on auction. there is no word on when the painting will be prepared. that is the bloomberg business flash. tom: and is a strong friday here at "bloomberg surveillance." we are here with francine lacqua and barry eichengreen from the

university of california at berkeley. we heard this week from carradine heart -- karen i'm heart -- karen reinhardt. are emerging markets steeled for a better outcome? are the instabilities as evident as in the past? barry: the instabilities are clearly still there in argentina, turkey, and elsewhere. you get financial crisis when you have a combination of financial weakness and vulnerability on the one hand, and we could governments, -- week governments, erotic erratic politics. there has been a misstep in argentina and similarly in turkey. tom: do we ask too much of our

institutions? you represented the institutions at the time. do we ask too much of madame lagarde and from the developed countries? barry: no. i think madame lagarde and that imf have come and long way since the beginning of the decade. they will play a constructive role in argentina. we have to hope that they will hope -- continue to get support from the advanced countries, governments -- advanced governments, including my own. five years ago, the global financial crisis, both external and internal conditions. how vulnerable are they to fed increases? barry: they are very vulnerable. corporate debt has increased in

-- and theble vulnerable economies current account deficits have widened. growth is slower than it wasn't 2008 -- than it was in 2008, so there is a lot to worry about. earlier commentator, i have been predicting a stronger dollar for about a year. at one level, i am happy to see it rise, because it confirms my views. i was awfully early. it is going to create pain for emerging markets. withwe will come back barry eichengreen. he has demanded that we not speak to him about the wedding, but we will speak to him about the united kingdom. barry eichengreen in our london studios this morning. coming up, a conversation on retail, consumption, on what we

see in retail, and just as importantly, what we do not see, what we are missing in retail. jerry storch will join us. this is bloomberg. ♪

♪ there is a wedding and it will be celebrated across all the united kingdom. there will be wedding parties around the world as well. the numbers are stunning. between million watched the last affair in the united states -- 23 million watched the last affair in the united states. billions were watching the duchess of cambridge and that if affairin 2011 -- in that in 2011. is this wedding as big? francine: i think it will be a little bit diminished because he is not air to the throne like prince william was. if you look at the numbers last time around, kate middleton and prince william. maybe there is more interest this time around.

i know that there is a lot of focus on it, especially from the u.s. networks. tom: now we tried a tenure professor into wedding talk. eichengreen, pound sterling across three weddings. here we have a diana and a gentleman named charles in 1981. sterling is far different. to 2011, we go up april of 2011, and a stronger pound-sterling. it was an absolute desperation of weakness. why don't you find correlation --h professor i can green eichengreen as we look at

pound-sterling. barry: it will continue to weaken. i think the trend had been in that direction because of the productivity problem in the u.k. the brexit noise is only going to reinforce that trend. francine: what happens with the customs union and how does it impact pound? and is unclear what the government negotiating position is on brexit. it must be very difficult for investors to have models. barry: it appears to be unclear, even to the government itself. the uncertainty will cause everyone to hedge their bets. that means moving business out of the city, to dublin, amsterdam, paris. technology is working in the same direction. in the old days, cable had to be linked to new york by cable, and now we have fiber optics everywhere, so it is possible to move to dublin. i think figures and commercial banks are going to hedge their bets by moving some of their operations elsewhere. francine: is it too late to get

some of the business back? you could see a transition period. is that far-fetched? barry: i think the movement is already happening. could it be reversed in the future? ise brexit itself, nothing conceivable, but i think it is unlikely. i think the new world will be much more decentralized. ,om: your important new book what is the shelf life of populism? how does it end? what is the backside of a populous trend? barry: it really depends how the political mainstream response. in the book, i talk about different episodes, like the republicans in the 1890's who did respond with social reform and won backform

voters to the mainstream. there are other cases where they failed. it depends on the other total system, on the media -- on the toral system, on the media and whether they play a good role or not. tom: barry eichengreen, thank you so much. barry eichengreen, his word on populism as well. francine has a copy in london. stay with us worldwide. this is bloomberg. ♪ mom you called?

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trade surplus. robert lighthizer throws up his hands at nafta talks. italy, we have a government for real this time. a populist government forms in italy. no premier yet and markets stay skeptical. present maduro will win the election, but what's next? oil production falling and more u.s. sanctions loom. david: welcome to "bloomberg daybreak." i'm david westin reckoned with alix steel. are you excited about these venezuelan elections? alix: when you talk to experts, this is what they her watching -- they are watching. david: i think i may know how it comes out. alix: do you think maduro is going to win? [laughter] u.s. futures engine their way higher -- inching their way higher and averting all the selloff happening in europe. the euro-dollar a touch weaker. the markets are not buying this italian election sort of