♪ francine: driving down tensions. china is said to have slashed import duties on cars. automakers open higher in europe. italy's populace push. their choice for prime minister is a law professor with no experience. the bank of england governor will appear before lawmakers and hour -- session in one in one hour. as his communication comes into question, how can he guide the markets? ♪ good morning, everyone. this is "bloomberg surveillance."

these are your markets. we see a mixed sure. some of the stocks are higher. those that are lower or maybe a little bit of a disappointment when it comes to the figures. gainingx 600 overall is 0.1%. there are standouts in currency. i am looking at euro-dollar. euro reversing some of the drops that we saw overnight. italian bonds actually bouncing back. gaining there is a possible fresh election in great britain. let's check in on a european carmakers after china said it could cut car import duties. trade war fears are easing and auto stocks opened up this morning. great reporting on the ground means that some of these stocks are gaining as we speak. coming up, we talk euro, outlook with megan greene of manulife.

we hear from steve bannon later and still to come, we hear what the wells fargo chief executive, tim sloan, had to say about the u.s. economy. let's get to the bloomberg first word news. >> china will cut the import duty on passenger cars to 15% in a move that gives a boost to makers of luxury autos such as bmw, and tell you is lexus unit -- toyota's lexus unit. it has decided to reduce the levy from 25% that it set a decade ago. basic to defuse tensions and avert an all out trade war. french president emmanuel macron is due to hold direct talks with his russian counterpart on thursday about a range of issues, including a run -- iran. u.s. secretary of state mike

pompeo has told iran to halt uranium advancement and give inspectors access to the entire country or face the toughest u.s. sections ever. sanctionsions -- the will be painful if the regime does not change its course to one that rejoins the league of nations. these indeed will end up being the strongest sanctions in history when we are complete. >> oil has extended gains as investors assess the risk of further declines in then is william crude productions -- venezuelan crude production. meanwhile, american crude by 2 millionl barrels last week according to a bloomberg survey before government data due tomorrow. chinese formula and maternity

care stocks have jumped after the country was said to be close to ending limits on the number of children a family can have. producers of everything from makers of maternity goods to incubators saw their stocks surge. --n p.m. makers enjoy boost pn oh makers enjoy boost -- piano makers enjoy boost -- -- pn ohenjoyed a boost. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine? francine: thank you so much. they's president meets with leaders of the lower and upper houses of parliament as he considers whether to approve five-star's nomination for a prime minister. the populist party proposed a law professor. concerns remain about his lack of political experience and ability to control rivalries. yields on the italian 10 year fell yesterday.

joining us now is bloomberg's bureau chief. thank you for joining us to keep us up-to-date on everything happening in italy. how likely is it that the professor will get the president's blessing? >> right now it looks pretty likely. and is taking longer than we thought. we that perhaps today the president would already say yes, but it appears that he has to think about it. there are several things that have disturbed the president. as he himself has said, he is not a notary. he is a guarantor for the entire democratic system. in times of crisis or change, he plays a role.

he wants to be consulted and wants five-star and the leak to communicate with the --he wantsd league to communicate with him. he needs time to consider the professor. this is a man that nobody knows much about. he is a professor of law and seems to have a lot of experience. he speaks other languages, but has no political experience. there are concerns that he may be a puppet in the hands of the five start and the league --'s five-star -- five star and the league. he is not too happy about the possibility of the prime minister been a puppet -- being a puppet. francine: the chinese have confirmed that they will cut passenger car import duties to 15%. we understand that china has said it will indeed cut the car import duties to 15% starting july 1. plate, -- play, because italy is such an exporting economy.

the new prime minister have two changes the recovery so that they focus much more inwards? so that the person on the street feels a benefit of the recovery? >> that is indeed a problem. that is what has always helped italy's economy. you don't want to hurt that part of the italian recovery. the problem with italy's recovery is that it is not that strong. italy isn't it growing, europe is growing. italy is not growing as much as the other countries. star and star and league are fortunate to be in the government at a time when people are feeling more positive about how things are going. they will have a little bit of a leeway for their programs, but they cannot go on a spending spree. you have to find a way to make their program and doable, reasonable, and that makes sense with this kind of growth and the kind of debt that italy has. francine: what kind of

relationship does the president have with the designated prime minister? is he going to quiz him on how he does on budget shortfalls? >> i don't think he does that. definitely he will have to see him. we are waiting for that to happen. the two will have to speak. theead in some reports that professor is a bit concerned and is already starting to tell people behind the scenes that he will not have enough freedom. he wants to have enough freedom. perhaps this lengthening of talks in the timing is also to give everybody enough time to think about this. macronone -- emmanuel wants to make sure that he will be a real prime minister. there are some other issues. there was a story about that the professor is exaggerating some of the things in his cv.

we will have to see if that is a serious issue or not. there is so much on the table right now and that is why it is taking more time. francine: thank you so much for the update. that was our rome bureau chief. how concerned should markets be about italy? greene,us now is megan chief economist at manulife asset management, and max kettner, cross asset strategist at commerzbank. thank you for joining us. talk to me about these italian rates. there was market angst yesterday. what did they see yesterday that they did not see him credit? megan: there is more confirmation that it is likely to be that professor to be prime minister. who do you call in rome if you done?o do something is it going to be the prime minister? or will the characters in the five-star party and the done? league be running things? if you take that chart back further in time, they increase

has not been that huge. i think that represents a lot of complacency on the behalf of investors. i think it is probably misplaced, given the things in the government programs. there is the idea that you might anance all of this with backdoor way to borrow without adding to public debt. it could be used as a parallel currency one-day. this will not blow up in the next year, i don't think. for anybody with a medium-long-term look, i think italy is really worrisome. francine: how worried are you, max, about italy? -- if italy becomes uglier, the germans will be worried about signing anything. max: given my german side, i should be naturally worried. it puts it into context. i think what we have seen with italy so far -- not only this

year, but pretty much since the beginning of last year, we looked at btb bund spreads, they were nowhere near crisis levels. when you look at what has happened over the last 15 to 18 inherentlyhing was the periphery is doing so much better or there is no political risk anymore. it is much more linked to the ecb. it is an ecb trait. peripherals are out of the worst. francine: you mean scaling back? how problematic is that going to be. max: that is the big issue. what you have seen over the last week and a half is the reminder for investors that look come things have not changed overnight -- that look, things have not changed overnight. now there is not political risk

anymore, growth expectations are going higher. the ecb is going to be very shallow and their cutie exit -- in that qe. not everything is just fine. things are a little bit better than in 2015, 2016, certainly better than an 2012, 2011, but nowhere as good as what people would make it. surely after the move, what we have seen over the last week and a half, there might be some relief of btp's short-term. strategically it is not the time to be btb long right now. francine: megan, do you believe that the markets are complacent right now? this is one of my favorite charts. you can see the borrowing cost for the 10-year note is higher in italy than it is in indonesia. do you worry about euro membership? our would that be going too far? megan: i don't think it is going

to part. i think the european project will succeed or fail in rome, basically. i think if the project does fail, it will be because it is an italian problem. there is fundamentally no pun for what to do if -- no planet for italy if it were to get into trouble. what if italy gets into trouble? they will say it is no problem, they would just get an omt program. an omt program has never been used. basicallyilout financed by the ecb, but with strict conditionality. ifyou ask roman politicians they would ever accept the conditions attached to a omt program, they would say absolutely not. there is a big cognitive dissonance between frankfurt and rome. there is no plan at the european

level for what to do. francine: thank you so much. max kettner from commerzbank and megan greene from manulife asset management stay with us. china is said to cut car import duties to 50% following a trade truce between beijing and washington. we will get the biggest winners next. and not so hot property. we will bring you an interview. this is bloomberg. ♪

♪ francine: economics, finance, politics, this is "bloomberg surveillance." i am francine lacqua here in london.

china is slashing car import duties to 15% following hp truce between beijing and washington. european automakers -- on the cut. for more we are joined by bloomberg's auto reporter in frank for. great to have you -- frankfurt. great to have you on the program. another sign of lessening of trade tensions. >> yes, it is certainly positive news for automakers. talkshas been persistent and indications over the last few weeks and months that the chinese auto market might become more open for foreign investors. this seems like the latest step in that direction. francine: does it actually mean a lot for european automakers? how much do they export to china? do we have any idea of how much more revenue they will gain from this? >> yes, it is especially

favorable for the german premium carmakers. they have relatively few local production in place in china, compared to the big market manufacturers. we just actually got a fresh set of estimates from analysts. they have numbers out there saying that -- for example, bmw dutiesed cut of import would be quite substantial for people like volkswagen. the effect would be 750 million in potential ebitda contribution. pretty solid profit gains their if the move is approved. francine: thank you so much. that is our office reporter in frankfurt. megan greene from manulife asset management and max kettner from

commerzbank are still with us. can we really assume that now this is the escalating and -- d escalating and there are rosier times ahead, or can it flareup quickly? max: it is not simply let's appease europe and everything. the europeans benefit a lot more and the germans benefit a lot more come which makes me happy -- a lot more, which mix me happy. a step back and not have a full-blown trade war. perhaps the probability of a full-blown trade war is going down slightly. the second thing is, we already heard in february, the base case was that global trade growth was going to slow. that was 1.5, two months before we had all these talks of concerns of a trade war. when you look at the second half of the year, you had korean

exports temporarily growing by 35% year-over-year. baseia you have very high affects. export growth of prices in emerging markets has grown since 2017. it is not only that emerging-market exports have been growing, but they have been growing more than expected. with the dollar coming back and high base effects, a growth on a global perspective is going to slow. francine: if you go back to the trade war concerns and tensions, do we know what each party wants? is this smoke and mirrors? or is there people -- peace offering is on each side? megan: the tariffs are a way to get at who is going to be a global leader in artificial intelligence, machine learning. there is a question about the

u.s. having to produce more stuff. it is not like we are in the beginning or late stage of the business cycle -- in the beginning of the business cycle. we are in the late stage. our imports from china increased by 13% in the first quarter of the year. that should slowdown. even if china buys more, our bilateral trade deficit will probably widen by the end of the year. is this a trade victory? no. this is more of a cease-fire than a peace agreement. this is fundamentally about the made in china 2025 strategy. it is about who is going to produce the driverless car's. these tariffs never really get at that. that question is outstanding, so i think we will see these tensions rise up against. francine: very good point from

both of you. as seen by many as the architect of trumps 2016 campaign. he has criticized the president's decision to hold off on tariffs against china. he talked to us about how he would handle the trade situation. >> the best thing to do with china is a confrontation. a confrontation to tell them we are firm in these beliefs, we will not let you still are innovation, we will not let you stick their -- sit there and basically rape silicon valley. it is not going to happen. francine: we also asked him about the investigation by special counsel robert mueller. >> i didn't see anything in that line of questioning that was when to be problematic -- going to be problematic. i would strongly advocate that

unless it is absolutely necessary, the president should not to down. -- sit down. francine: for more, let's get back to our senior writer who conducted the great interview. who listens to steve bannon? does the president was into steve bannon -- listen to steve bannon? >> that is a good question. i pressed him on that. who is he in touch with on the administration. he would not say directly. he said that he would did not want to comment on who he is in touch with in the trump administration. it is clear that he is pushing for trump to take a tough position, both on china and the trade war, and with special counsel robert mueller, where he advocated that trump did not need to sit down for an interview with robert mueller, that it was unnecessary. that he can answer those questions in writing. francine: you have been

following the trump administration since the very beginning. what did you learn in this interview? >> i learned that obviously there are divisions within trump's inner circle. steve bannon is a prime example of that. he is from the hard-line in the administration. he criticized treasury secretary steven mnuchin for agreeing to hold off on these tariffs, saying that china -- that we are already in economic warfare with china, they are not backing down, so we should not back down either. , hehe mueller investigation indicated that he thought giuliani was doing a good job, that he should press ahead with that. i think it shows that trump may be taking a tougher line with the idea of sitting down with special counsel robert mueller for an interview, and that we may be in for a long haul, francine.

francine: great work on the ground. our senior writer, stephanie baker, who was just speaking to steve bannon. still with us is megan and max. imagine if president trump or a trump administration that also becomes much more belligerent as we go into the midterm election? how is that tainting his view of foreign policy? megan: there are two things over which the president has a lot of power going into midterm elections. one is trade and when his power -- one is power. he has many people around him that are certainly very hawkish. i think we will continue to hear a lot about this leading up to the midterm elections. francine: megan and max but stay with us. megan greene from manulife asset management and max kettner from commerzbank.

wells fargo tries to move past its series of scandals with a shift into --. we have an exclusive interview next. we also check on your data, on markets. i am looking at italian bonds rising. stocks are drifting in certain parts of europe. investors are trying to digest this easing of trade tensions. also, the latest comments from members of the fed. we will get treasuries, look at inflation's in the u.s. next. this is bloomberg. ♪

♪ economics, finance, and politics. this is bloomberg surveillance. i am francine lacqua. let's check in on what is trending on tictoc.

find out why steve mnuchin is urging a big -- a doj review of big tech. had to bloomberg.com. had heads to bloomberg. -- to bloomberg -- head to bloomberg.com. our most red, we start with number three. it is a little bit like the oscars. in third place, it is more trade war developments with president trump retreating on china terrace due to concerns with north korea -- china tariffs due to concerns on north korea. cute with china is said to import duties. max and megan are here. you some a double act, i love it. megan: it is all going to be all about trade for a little bit, and maybe this can abate for a little while now the trade

tensions seem to be simmering. in the u.s., everyone is 100% focused on trade. francine: it is our most read story. .ax: it is trade in politics if you think about fundamentals, do we care about earnings season now? we talked about valuation earning, and it is really politics. it is trade, italy, and the surroundings. francine: which is difficult to price? max: absolutely. francine: we will talk about it for many days to come. let's get to the bloomberg first word news. china is to cut the import duty on passenger cars the 15% from 25%. the minister of finance also said it will lower levies on cars to 6%. this comes amid a truce as they hope to evade tensions. president aitaly's

set to meet the hunger us -- italy's president is set to meet the congress today. costs arerrowing surging as the populist party's attempt to forge a government. the incoming five-star administration and leak seemingly prepared to boost spending without regard to the roles. >> we gave to the president of the public this republic the name. he gives a person who comes from this country. he grew up in san giovanni. he is a self-made man, a tough person. you will come to know him as the president accepts his name. ie: emmanuel macron is set to hold talks with his russian

counterpart on wednesday as part of a wider european effort to tie vladimir putin to the nuclear accord. that comes as u.s. secretary of state mike pompeo told iran to nuclearnian -- enhancement or face the toughest sanctions ever. of sanctions will be painful if the regime does not change its course from the past it has chosen to one that joins the league of nations. these will and he up being the strongest sanctions in history when we are complete. kaylie: 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 kailey leinz. this is bloomberg. francine: thank you so much. let's get to one of our top corporate stories, wells fargo will boost lending for auto sales as it seeks to move past recent scandals and controversies and polish it

they tolderest -- erik schatzker there are some markets that concern them. >> we tend to be more conservative than many of our competitors. that is one of the reasons we are here. during the financial crisis, we are not a bank that created a concern in the industry. there are some markets that we are a little concerned about. auto, we pulled back. i think we have pulled back enough and now we will be growing that business again. erik: where else? >> we are a bit concerned about the commercial real estate activity. we are the largest commercial real estate lender in the country. some transactions are being done that seem a little bit frothy. again, i do not think anybody is smart enough -- i am not smart enough to pick the point that credit turns. you have got to be consistent in

terms of how you manage credit, and you have got to be looking for signals. you keeping a close eye on to know when that cycle has turned? is what isd foremost the economic health of the country? most of our business is in the u.s., so are regrowing from a gdp standpoint, are we creating jobs? even in that environment, there's a lot of dislocation occurring is of technology and other reasons, that can impact our customers. erik: there's a lot of concern the yield curve may invert as the fed raises short-term interest rates because in the past it has preceded a recession. >> it certainly could invert. i do not think if it converted in the short-term -- inverted in the short-term, there was concern about us having a

recession next year and the year after that. it has more to do with the fact that when you look around the world, long-term rates in europe and japan are much lower than here in the u.s. you can argue whether that makes sense from a returns standpoint. that is keeping a ceiling on long-term rates, so you see the yield curve flattening out a little bit. erik: as the 10 year treasury is at about 3.1% today, where do you figure? >> i am not smart enough to know. erik: you are risk managing your balance sheet with that in mind. >> we have people doing that all the time. 3.5% imagine a 10 year at or 4% in the next 12 months? absolutely. we had a significant backup within the last three months, and if you believe that economic activity in the u.s. and the world will continue to increase, you can imagine rates getting in

that range. erik: as rates get higher and the yield curve slows more possibly is it better for the bank? >> as long as the underlying economy is performing well. from our perspective, a positively slow yield curve and slightly higher rates are good for the company. they are good for the industry as long as underlying economic activity is still strong. francine: that was the wells fargo chief executive tim sloan. his comments, head of the minutes from the last fed meeting, where we might get some clues about the right path. let's keep the focus on the united states. still with us are megan's -- megan greene and max kettner. if you look at the 10 year treasury yield, does the inversion not take a back step? the yields are going up, or could they go back lower? megan: i think they might just

decelerate in terms of going up, as the fed is hiking at the short end. at is perfectly normal to see a flattening of the yield curve. that is not necessarily something to be concerned about. i think the fed is concerned about converting the yield curve. even though jay powell and janet yellen said if it inverts, it is not a problem, since this has come out they have said the yield that's an version of the yield curve has 100% power of recession. francine: do you think they will try to manage it so it does not invert? actively managed this dilemma. megan: as the yield curve flattens more, i think the fed will feel more pressure to adopt a dovish bias. francine: do you agree? in terms of, but yields, if you look at

year-over-year affect in wti or brent, we have seen the peak of these year-over-year growth affects in the middle of july, which tells you until august there could be on the headline inflation, some basis for positive inflation surprises. if you look at the last 18 to 24 months, it was heavily coordinate with the 10 year curve, inflation surprises. if we have inflation surprises to the upside, that could be the basis for temporary steeper curves and higher yields. thereafter, i do not famous of a case for 3.5% or 4%. you have the natural rate -- sorry, the neutral rate, two and three quarters, 3%, it is not really the basis of getting a 4% unless we see aggressive balance sheet reduction by the fed. and you can see higher term premium rice into the lower end

and you have steeper curves. is that good for the banks? absolutely not. it is not a reflection of the health of the economy. francine: how problematic is this for emerging markets? if you look up -- look at the buildup in a.m. debt during a financial crisis desk em debt during a financial crisis, they will suffer in the next few months. max: i think it will be difficult for em probably because we have more upside in terms of treasury yields and we have more upside for the dollar. what we see right now in terms of global growth and the global inflation picture is a move away from virtually every single investment strategy. if you scroll through the spread outlooks in 2018, you will find the words synchronized at least once. we are moving away from this picture, synchronized growth. that tends to benefit the dollar

as people move away from cyclical. they move away from yen and so on ms of and back flows into the dollar. that is the double ma for the yen. -- double whammy for the yen. francine: what does rising rate hikes and dollar mean? megan: i think it will be painful for emerging markets. debt, a of issuing u.s. lot of these countries are invoicing in u.s. dollars. a lot of these em countries have barred from china to implement infrastructure programs -- borrowed from china to implement infrastructure programs. over the medium to long-term, the outlook for the dollar is soggy. the long-term growth in the u.s. is pretty tepid and if you look at our budget deficit and current account deficit, that suggests there should be a ceiling on the dollar in the long-term. francine: thank you for joining us. i want to show this chart.

,t is philippines and indonesia the foreign reserves they have had to deploy in defense of their currencies. megan greene and max kettner stay with us. bloomberg users can interact with the charts being shown with the tv . charts,steal my latest browse recent charts. you can catch up on key analysis reference.further stay with "surveillance," carney faces -- testifies in front of congress. munication is the flavor of the day and signals on interest rates come into play. -- communication is the flavor of the day. we will go live to tokyo later on. this is bloomberg. ♪

♪ this is bloomberg "surveillance." mark carney may be wondering if less is more when he speaks to financial markets. he has seen his recent signal on interest rates questioned after a number of signposted policy shifts failed to materialize. he speaks to lawmakers on the central bank's latest inflation report this morning. megan greene and max kettner are still with us. the concern is that, i do not know what the markets were too quick to price in an interest rate hike, which governor harney had to walk them back for --

governor carney had to walk them back from, or whether he guided them too much. this was a problem with for word guidance. -- forward guidance. max: i think when you look at the preparation, it was not really that quick. it was over a week or so. 1.5 months or two months process. , i personally found it quite surprising they would backtrack from that. this is the problem with forward guidance, because if you have conflicting signals it goes down a 50%. during those days, you have two to three data points which is disappointing and all of a sudden the market takes a step back and a rate hike is being priced out. that is the problem. you will not solve it, but it introduces a little bit of a communication pickup and uncertainty -- hit cap -- hiccup

and uncertainty. francine: how do you gag the changing thet guidance? megan: the fact that it is data dependent helps. the bank of england should have seen this coming. the inflation was triggered by moves in the currencies that will fall out of the year on year comparison. it seems like a lot of the economic data would be turning over, so it should not be surprising that deflation is slowing a bit and growth is altering. the bank of england might have seen that coming in that might've been it problem in terms of their forecasting. francine: we listen to mark borrowers, heg to wants to speak to mortgages, moms and pops of the economy to make sure they do not over leverage their households and he is also speaking to investors. megan: every central bank has to do both.

they are unelected officials serving everyone, so it is hard to bridge the two. fundamentally, the bank of england is having to choose whether to focus on inflation or growth. in the past, they have always sided with growth. that seems to be what might happening -- what might be happening. francine: if you are on the mpc or you were a governor, is there a data point you would look at? max: not really, just a conglomerate of data. the one thing that sticks out in the u.k. is real wage growth, that has been pretty dismal. as megan said, that has been mostly due to transitory effect. thinkhat perspective, i if we had conflicting signals and also conflicting data points, fair enough. it does not really suggest we should hold off from a rate hike. you could still say, we will go

one step higher with 25 basis points and thereafter it will be much more shallow. in the last two years, the fed was hiking several times but we had negative economic surprises and data surprises, but they did not hold off because the market was pricing in 280% to 90% problem -- into 80% to 90% probability. where the bank is now is not consistent with where the growth is now. rates naturally should go a little higher. megan: western banks are concerned they do not have room to cut in a recession. the ecb still has negative rates. more than focusing specifically on their mandates, western central banks are looking at financial conditions to see if they can get away with rate hikes without riling the market or disrupting economic growth so they might have some room to cut with the inevitable downturn. francine: the max turn. hold that thought.

we are focusing too much on financial conditions. that has been the one thing that has been holding us or basically slipping into recession. are is the one thing we focusing on, central banks are focusing a little too much on. francine: it is something we definitely need to watch out for. you can follow along with mark connie -- mark carney testimony on live go. megan greene and max kettner stay with us. sony buys the majority of emi music publishing that it does billion.for $2 it gives sony a catalog of 1.2 million songs from beyonce to carol king, solidifying its position as the biggest music publisher. it is part of the chief executive's plan to pivot from hardware into a new growth plan builds on content and services. is our asia

technology reporter in tokyo. first of all, what does this deal signal about where sony wants to go, what sony wants to be? >> sony is really changing quite quickly. it really wants to become more like disney, wants to own a lot of content and intellectual property. it wants to make entertainment the center of its business. as it focuses on that, it is moving away from hardware, stuff like we know sony to make tb's, smart -- tv's, smartphones. they make really good digital cameras. it is moving away from all of those things that it sees as lower margin and cutting back on the hardware side, a lot of the gadgets that made them famous, and they are embracing the content, services, recurring subscriptions revenues and

things like that for online gaming. it is more about the content, the entertainment. them buying the 60% they did not own is just another side of that. they want to own the entire leg of music, which is part of that content, entertainment business. you will see sony over the next three years at least focusing more on this entertainment side and moving away from hardware. francine: does that mean they will also buy some film studios to compete with the likes of amazon and netflix? yuji: that is a good question. today, sony held a big presentation for investors and the new ceo was asked, do you see netflix, amazon, spotify is a competitor? he said, we want to make content ourselves and distributed through those platforms. we do not see them as direct competitors, although of course amazon and netflix are making

original conflict -- content. sony, although wants to make entertainment at center, it is not necessarily thinking about distribution as much. it wants to leave the distribution to others. when it comes to distribution, it has the playstation 4, that when it comes to music or movies , and really wants to create that content, on that content, and distribute it to other contact --wn that context -- content and distributed to other people. yuji ne: you do not a -- akamura joining us from tokyo. mark carney started his testimony a little earlier than expected. we need to thank megan greene and mark -- max kettner. let's go straight to governor carney testifying now in front of lawmakers.

, the the outlook changes actual policy stance will adjust and of course the policy stance is determined by the sum of the individual decisions. >> do you think that understanding the committee has that is about to change, that the policies themselves will change as understood by outsiders? economic commentators and some of the people who study these things in great detail. consumers, whether they decide to take out mortgages, variable or fixed rate, what duty do you think the mpc has? gov. carney: that is absolutely the right question. our guidance is first and foremost to people and companies we serve across the country. in the run-up to the first rate increase in a decade in november that we are anticipating that, survey household -- of

households and independent questions, the most recent household survey came out yesterday. three quarters of households expect rate increases over the balance of this year. and then to proceed at a gentle pace relative to history. we do not have time for it, but if you look on page five of the report which gives the market expectation of that path, roughly three increases of three years, and compare that to previous rate increase cycles of the mpc, think something like six increases over 12 months. the general understanding in the country, households and businesses, as it is the former, a gentle path, rates more likely to go up and not but at a gentle pace. that permits them to arrange their affairs accordingly. the other thing they would expect us to do is if circumstances change, to adjust policy. we need to be prudent.

is not that circumstances changed in the first quarter. it is more likely to have been temporary and idiosyncratic factors that slowed the economy. i felt it was appropriate to wait and get some more data to ensure that was right particularly in a circumstance when we are talking about relatively few rate increases over a relatively long period. >> you look at some of those factors, they base interest rates on the forecast of the market yield curve and say, was that too high, low, or just write. ♪

♪ francine: driving down tensions, china will cut the import duty

on passenger cars to 15% following a trade truce between beijing and washington. automakers over the open higher. -- open higher. will the italian populist force their selection for prime minister? borrowing costs soar. the bank of england governor appears before lawmakers as his communication comes into question. how can he guide the market? this is bloomberg "surveillance." johnson.gside guy tom keene off for the morning. if you look at some of the market, a lot of pressure on the back of italy and what this means for the european project, and trade and the carmakers. guy: that is certainly a story we will be focusing on. -- btp is a better bid. euro got a bit of a did yesterday which is interesting because that was hedges coming

off. we: we are also -- francine: are also watching mark carney testify. he was answering questions from nicky morgan, the head of the testimony, and she was asking him whether households understood the yield curve when it comes to boe action. let's get to the bloomberg first word news. to -- ishina as signaling it is willing to compromise on trade, cutting the import duty on passenger cars. it could be seen as a concession from beijing to president trump. boost to foreign automakers. there is a report that the u.s. and china have agreed to resolve te buying year ban on z american technology. details are still being worked out, but it would involve changes to management and significant fines.

south korea is still confident there will be a summit between the u.s. and north korea as south korean national security adviser predicts a 99.9% chance of kim jong-un meeting with president trump . the president needs today at the white house with south korea's president. british foreign secretary boris johnson is hinting he wants tougher sanctions on russia and says he is paying close attention to the sanctions the u.s. imposed last month on dozens of tycoons, companies, and key allies of vladimir putin. the u.k. has to coordinate sanctions with the rest of the e.u. 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. francine: thank you so much. foreign reserves under attack, borrowing costs not hire then in

engine -- higher than in engineers -- indonesia. let's get you a very basic but important data check. a measure of risk appetite returned to the markets on tuesday and developing nations stocks like the ftse are rebounding. the euro climbing back with italian bonds. dollar down. treasury yields edging higher. there is speculation there could be another u.k. election. i do not know if we are ready for the. guy: i am not. you talk about the euro, that is catching a little bit and the pound is catching a little bit. this is a dollar move rather than a dollar move and i do not think it is carney related. we will keep an i on what the governor has to say to those lawmakers. just a quick look at what is happening with the turkish lira, catching more of a bid this morning.

there is some action in the banking sector. futures are up by 7/10 of 1% to the close yesterday. venezuela remains a concern for the crude markets. brent catching a bid, trading just sub 80 right now. francine: mark carney has just begun his testimony to lawmakers on the bank of england's latest inflation report. he has been talking for about 15 to 20 minutes, questions on all the householdsr should have a better understanding of the yield curve and whether they understand that yields could go higher. joining us for the hour is richard turnill. you make us smarter about all things markets, but to the bank of england, do you look at pound or the pound dynamics and what would a fresh election due to currencies? richard: first of all, great to be here.

that think the last thing investors in sterling or in the uk's stock market want right now is another election. you have clearly seen the pound hit recently by a combination of strong dollar broadly, and currencies being hit by some weakness in u.k. data, by the bank of england talking down expectations run interest rates, and yet another increase in political uncertainty. going forward, what will be critical for the pound is one of the path of interest rates we will see in the u.k., and do we see reduction in the heightened political risk? francine: this is probably the chart that is not really moved. i do not know whether it is range bound and what would take for that parent to break away? richard: if you want to see sterling rally here -- from here, you need to see some signs

of acceleration in u.k. growth. our indicators have been extremely weak in the last few months and in the last -- extremely weak. in the last few months, they have weekend further. that is weaker than we are seeing and the rest of europe and significantly weaker than the united states. in our view, one interest tight in the u.k., a very gradual move , we do not think that will be enough to cause that chart to break higher. guy: should we or should we not carry carney live? the reason i thought we probably should is the market likes looking to central bankers and pays attention. why should i believe what this man says? richard: you have certainly seen the messages coming out of the bank of england and that other central banks have ever -- have been able to move the markets recently. if you look at expectations driven by the messages from the central bank, they are reflected

not only in the value of sterling but in the shape of the u.k. yield curve. guy: it is wrong every time. richard: i think what you have been doing is reacting to the data. the data has been softer in terms of the growth and imports. inflation has been persistently above target, starting to move down toward target and some softening of the message about future interest rates is appropriate. francine: why not just look at the data? what is the market listen to mark carney who interprets the data, and do we have a little bit of a twist? richard: we carry about the data , and it is important to look at the data overtime. it is important to understand the central bank's reaction function to that data and that has impacted -- guy: do you understand what the bank of england reaction function is? richard: it has been changing. francine: forward guidance works? richard: markets want to have

certainty, some markets react well to certainty, clear forward guidance and messaging about what that reaction of how the central bank will respond to data as it comes out. when you look at the experience in the u.s., we have had clear and consistent measuring which has led to the market pricing in further rate hikes in the u.s. when i look at the u.k., later clarity is always well received by the markets. francine: we will continue following mark carney on live and you can catch him on bloomberg live on the bloomberg terminal, and follow the latest developments on our live blog. richard turnill is staying with us. up next, we talk italian politics. her about theo new prime minister designate. will he get the approval by the president or not? what does he do with the budget

deficit? ♪

♪ this is bloomberg "surveillance." let's get the bloomberg business flash. shares are soaring and heavy trading and europe. tableg in the dutch-based and mobile service provider has more than tripled the 20 day average. france's telecom manager said he is more open to deals now. altice all t's and -- and other companies are positive. embers mbd agreed to buy a spare banks union in turkey. the purchase price, $3.2 billion. they face limited expansion opportunities at home.

sony is underscoring its new strategy with an acquisition. they are getting their hands on the catalog of more than 2 million songs from performers like beyonce and carol king. that they do not own they are purchasing for $2 billion. sony's new growth plan is based on content and services. marks & spencer has made it storeal, the department plans to close down more than 100 stores in the u.k. by 2022. the changes are part of their previously announced plan to reduce the space it devotes to clothing by 25%. they have more than 1000 stores in the u.k. but only 700 now sell food. that is your bloomberg business flash. francine: thank you so much, taylor riggs. italy's president is set to make the country's lower and upper

houses of parliament today as he considers five-star's nomination for prime minister. italian assets have slumped amid mounting concerns over the populist coalition's fiscal plans. nathalie tocci joins us from rome. as always, great to speak to you. last time i spoke to you was the day after the election. we have a tweet i am bringing up , and he is saying europeans, do not interfere, it is the italian , the italiant citizens first. how will they find their spending plan quest -- find their spending plan quest -- fund their spending plan? nathalie: there are no financial promises in the so-called government contract. many things within the government contract our old wishes, even of the renzi

government. whether we are talking about revisions of asylum, not including public investments and to budget deficit accounting, these are not new stories. the point really is that many of these things require consent and consensus within the european framing, so the bottom line really is, is this particular government going to have to strengthen credibility to be able to renegotiate some of these roles? -- rules? my personal opinion is negative. francine: we know the president will be taking his time on whether he will formally appoint this law professor from florence, does he wants to contain political rivalries. if he does not appoint him, won't it just be a sign that the system is rigged against populist leaders? nathalie: i think you are absolutely right.

mind you, i do not think the main problem actually has to do with the figure of this possible prime minister. i think the main concerns the president currently has have more to do with the potential minister, particularly when it comes to the minister of economy. the name that has come up has been a minister in decades past, but has taken some unconventional positions when it comes to the euro. he is known as being anti-euro, and regardless of what he may or thenot do, the major risk president has in his mind is the fact of him being there having repercussions on the market. i see this less is an issue that himself andth conte more to do with the formation of the government and the overall program. guy: good morning.

listeningeems to be to the more euro skeptical wing and there seems to be the sense that maybe they are looking to spark a crisis, that actually rather than this acting as a limiting factor -- and it is interesting that fran brings up his comments about external interests -- but what they want is a fight with europe. d.c. that beginning to take hold? nathalie: the on the rhetoric, not really -- beyond the rhetoric, not really. if you go through and rate the various pages of the government contract, you see that this is not about big rates with europe. it is a lot of pompous rhetoric about rules that have to be revisited, but there is no indication its leeward cut ties with the european union, or the pullout of the euro. rhetoric inf big loud voices and trying to rally

the people around particularly the league. the other aspect that has to be highlighted is that it is paradoxical but true that in this particular government if it is to be, it is the league that seems to have the upper hand, although it is in principle the minority partner. there is euro skeptical rhetoric but no indication there would be a break when it comes to euro. the main issue here is whether the break, if there is to be a radical turn, it will be less the product of a particular government decision or action and rather the indirect effect of the way in which markets are indeed already reacting. guy: is this the reason 2.0? nathalie: no. actually, i think the way in which the government -- if what you mean by 2.0 is ultimately, all the rhetoric but ultimately backing down, then yes, i think

it is. if you mean it as a new incarnation as the last -- of the left, this is actually the five-star movement taking a very ,lear bend towards the right obviously as a consequence of entering a coalition government with the league. francine: nathalie tocci, thank you. mark carney speaking. guy: i got you to do that because the pronunciation for italian, fran is better. francine: i am good for something. guy: mark carney testified to lawmakers on the recent inflation report. if you want to follow what he has to say in full, life go is available -- live go is available on bloomberg. this is bloomberg. ♪

♪ francine: good morning, everyone. this is bloomberg "surveillance." guy and francine from london. let's get more with richard turnill. we were talking political risks about why the president was taking so much time to confirm the prime minister. what we saw yesterday is yields higher for italy. are the markets complacent or two aggressive? richard: you have had an increase in political risk in

italy but it has not spread to other markets. it has been very much a localized risk or a series of localized risks. when we have seen this type of events in the past, the higher spreads persist for some time. at the risk of a crisis in italy is low, but i'm certain it will persist for some time. that means italian yields will likely remain higher than in other parts of the world for some time. , socine: the ecb is firm what happens at the end of the year when they start gilling back there qe? we pitted the italian yelled with indonesia -- yield with indonesia. nathalie: the real challenge -- challenge willal come not when the ecb starts to gradually withdraw qe. we think the first rate hike is still probably over a year away, so a gradual return to

tightening. the real challenge will be when the ecb starts tightening policy significantly and when we see the next downturn in the european economy, which will pose a significant challenge to countries running larger deficits. guy: a month ago if i had walked around the city of london and asked people about btp's they would have said they like them. liquid, real yields, easy to trade. has that changed? ,ven the world that we live in do i need to own btp's? richard: btp yields have risen and there is a temptation to buy the dip. you can now get high yields around the world at relatively low levels of risk. particularly when you look at the u.s. market, you can bet that two-year government bonds will yield over 2.5%. you can buy high quality investment credit yielding above 3%.

in the first time in a decade, you're getting paid a positive return.er inflation investors do not need to go out and buy risk further out in the risk curve in places like italy because they can get paid to positive return in safe assets. the has implication and all assets and we think it implies lower returns across the spectrum. guy: where does the money go in the near term? this is spain-italy and we see that spread blowout. does money simply just go to the rest of the peripheral story or does it leave europe? it looked like yesterday, we saw a spike in the euro and it looks like hedges unwinding on european holdings. that fed back into the euro. richard: you have had a number of headwinds for investors in europe. the growth has slowed. we entered this year in an

environment where european growth was the positive economic surprise around the world where we had a series of positive political developments. there was a real sense of unity and a sense we will start to see some reform. turn the course of this year, some of the economic growth data was disappointing and we are seeing reminders that political risk has started to rise. what we look for the most attractive activities to invest in, we see europe as reasonable but other attractive areas elsewhere. guy: richard turnill will stay with us. guidance provides certainty for households. ♪

guy: top of the hour, i'm guy johnson with francine lacqua. tom keene has a well deserved morning off. let's get a news update. here's taylor.

taylor: just as the threat of a trade war recedes, china has agreed to cut car import tariffs from 25% to 15%. that will help american automakers like ford. it also will be a boost to foreign luxury automakers like b.m.w., because less of their production has moved to china. france's president emmanuel macron heads to moscow this week in an attempt to salvage the iran nuclear deal. macron's trip to russia once threatened to split france from the european allies, and now it's part of an effort to tie vladimir pickup town to the agreement. the trump administration has put new pressure on venezuela's president, nicolas maduro, a day after he was elected to a second term. the u.s. including the state-owned oil company. president trump says that will prevent maduro from holding a fire sale of venezuela's assets. and mark zuckberg testifies

before the european parliament today. according to prepared testimony, he'll again take responsibility for privacy failures, such as the data leak to cambridge analytica. he'll also tout facebook's investments in europe. global news 24 hours hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. guy: thank you very much, taylor. steve bannon was seen by many as the architect of donald trump's 2016 campaign, has condemned the president's decision to hold off on imposing tariffs on china. he spoke to our senior writer, stephanie baker, in prague this morning about how he would handle a trade situation. steve: the best thing to do with china is a confrontation, not a confrontation where you try to go to war with them. they're already at trade war with us. but a confrontation to them them we're firm in these beliefs, we're not going to let

you steal our innovation, not sit there and basically rape silicon valley. it's not going to happen. guy: that issue still seems to be out there and one that the market is certainly paying attention to. but, of course, that was former advisor steve bannon. ining us now, still with us, good morning to you, george. george: good morning. is trump winning? george: no, i think what it is, it's china basically doing trade negotiations much more skillfully than the white house is able to do them. i mean, it's a nice gesture, right? the tariff that the chinese had operated for many, many years was about 25%, coming down to 15%. so for luxury carmakers, very few of which basically are american. guy: they do make -- companies

like b.m.w. make a lot of cars in the united states, many of which go to china. george: this is true, but american -- so it could have an impact on obviously b.m.w.'s plants. guy: b.m.w. is very happy this morning. they said it sees the china move as a "strong signal the market is opening," and it sees an even more dynamic level when it comes to the chinese market. george: yeah. no question about it. as you know, for the car companies, particularly those at the upper end, i think it's very good news. and it's a nice and positive gesture for the chinese to, you know, put out there and say we're being constructive and so on and so forth. but actually, in the round, you look at the white house's trade strategy so far this year, particularly during the last few weeks, and you can say this is just a bunch of charlatans. they don't really understand what they're doing. they're divided in terms of, you know, the pitches that they have kind of given to the chinese side.

and they basically settled almost for the status quo that they had before they started so. that's really quite appalling, and quite embarrassing, i think, actually. francine: the end game is quite differently. the end game is artificial intelligence. so this is where they find the battleground, but, you know, china, are they dominating or will it be the u.s. dominating all this a.i.? richard: from a market perspective, we're in sustained growth, one in which the u.s. is continuing to surprise to the upside. china has surprised significantly to the upside this year. that's created a robust environment where returns for investors are increasingly driven by growth. so we think about what could derail that in the main focus as been on escalation of trade tensions. on the issue of a trade war, actually with evidence -- there is a deal to be done, and

actually i think the united states over the weekend, agriculture and energy are much more significant about autos today. i think there's progress about national security in the u.s. the area which i think is still highly uncertain is about who's going to win technology dominance on a longer horizon. francine: is it smoke and mirrors or actual a deal to be done, but the deal could be in 30, 40, 50 years? it's so far in the horizon that actually it's not a clear win now. george: yeah, i'm not sure that i agree with that. there are small deals to be done in kind of a much bigger picture, which i think is going to remain tense and very prone to conflict for the foreseeable future. so obviously the other news there has been is kind of -- it's almost in the background actually about z.t.e., the chinese telecommunications company, where i think the announcement -- well, it's not

an announcement, but speculation is that the white house has agreed to kind of lift the sanctions on z.t.e. if there are changes to the board in z.t.e. and they pay an additional fine. so you can put robots or monkeys on the board, really wouldn't make any difference to the outcome. and i think that the issue about technology and about industrial policy in china, that's really what this is all about. i think automobiles, there's a lot of noise around this, but what this is really about is about america's objections, not all of which are unjustified, by the way, to the role that state capitalism in china plays in fixing the arrangements in trade. guy: bannon is concerned about what's happening in silicon valley, and there are plenty of people to talk about the i.p. issue as being the one that is the hardest nut to crack. why would it be in china's interest to allow the americans

to do that? one of the reasons why they are doing what they're doing is it allows the industrial side to catch up so much more quickly. why would you even to want put that on the table? george: you wouldn't, and they don't. and i think it was sort of half-baked idea for the white house to even think that they could actually influence or get the chinese to put industrial policy on the table. the chinese have made it absolutely clear. i cannot believe -- it's quite transparent, all the documents that the state council has put out since 2014, 2015, up to and including last year about artificial intelligence and robotics, quite clear what the ambitions are, and that, you know, we want to do this ourselves, and we want to be technological players by 2025, and we want to be leaders by 040 and so on. i think there is a deal to be done. there is a negotiation that can

happen between the americans and the chinese, but the way the white house has gone about it is just impossible. francine: can i ask something about financials? if you look at what the u.s. may want, it's opening the financial services to their own banks. will that happen in a significant way so that you think it's the sector i want to be in? richard: it's very encouraging, and that's partly based on the background of a strong growth environment. i think it's also partly on the background of rising interest rates, steepening yield curves that we're seeing in the u.s. francine: is there a china link? richard: i think china plays a role. if we look at the banks, they've lagged the performance you might have expected to see in recent weeks, given the sharp move up. i think you could argue the china link, which is holding that back, i think the key driver, the key long-term driver investing in banks is the outlook for the u.s. economy, is going to be the outlook for the interest rates and yield curve, both of which are positive.

guy: let's ask a question about sentiment. to what extent is the recent rollover we've seen in p.m.i.'s, and you can see this in the survey data, around the world, how much of that is down to the effect trade is having on sentiment? because sentiment is kind of -- you look at the p.m.i., they are sentiment-driven, and i want to know whether the hard ata, the link gets broken. richard: we look at the broader set of data coming out, it doesn't indicate to us a rollover at all. what it suggests is a stabilization of growth at very high levels. i mean, one area where we have seen weakness is here in europe, but when you look at the u.s., when you look at china, growth has been surprisingly strong in both cases. in fact, some of the most recent data has actually been very encouraging. when we look beyond the soft data, some of the big data signals, they're extremely robust. so we're not seeing this evidence -- guy: is europe the casualty?

richard: it does simply reflect the fact that soft signals reached extraordinary levels at the beginning of this year, which were never going to be sustained. if you look them literally, they complied european growth of 3% to 4%. that was never going to happen. thereyou have seen the numbers e back to more plausible levels. francine: i have a chart looking at foreign reserves. a broader question which is given the buildup and dollar yen, if you see reiser fed interest rates, how vulnerable are these rising markets? richard: what you have seen is tensions reappearing in a number of emerging markets which have been associated with a combination of changes in interest rate expectations in the u.s.. a short rise in the dollar and some idiosyncratic risks around countries like argentina.

what that has led to is a repricing of risk any emerging markets which have large deficits. keyhink about what is the driver of emerging markets going forward. encouraging.remain first is the global growth environment. our signals continues to be extremely robust. secondly it is china. and in asia, argentina, the key driver of emerging markets growth is china. china's growth has remained remarkably robust surprising to the upside and the chinese authorities are showing a willingness sees policy. thirdly, u.s. interest-rate policy. what we are seeing is a gradual, predictable tightening of policy. that leaves us policy desperately just positive. andcine: if the china won

you go to north and south korea and a possible meeting between the u.s. and the leader of north korea. does china want peace between well,o koreas? richard: yes is the short answer. do they want a rapprochement? what they would like for american troops to leave the peninsula what they would like is to continue to retain a very strong influence but they know they cannot control north korea. it is a bit of a wildcard in the immediate focus on these trade negotiations. trumpne summit between and kim jong un is an important factor. if you're going to be charitable, you might say the trump administration has caved into the chinese in advance of the summit. let's see what happens afterwards and see what happens because what the administration wants north koreans -- i don't

think they are going to get. geico it is interesting that the -- guy: it is interesting that the de-escalation hasn't happened. richard turnill, he is going to stay with us. coming up tomorrow, and interview with the ubs chairman from the imf spring meetings in brussels. bloomberg. ♪

francine: "bloomberg surveillance." this is -- this is "bloomberg surveillance." i am printing up a. -- i am francine locke what. bloomberg's eric chester sit-down -- and asked if he shared these concerns.

take a listen. who it could invert. i don't think it would be -- if it invert it in the short term, it would be because there is a concern about us having every session next year or the year after that. it has much more to do to cash long-term rates in europe and japan are much lower than the art here in the u.s.. you could argue whether that makes sense from a return standpoint. that is what is keeping us desk eating a ceiling on overtime rates. -- keeping a ceiling on long-term rates. the piece?you figure >> i'm not smart enough to know. >> your risk managing your balance sheet. >> great people are thinking about that all the time. could i imagine us seeing a 10 four?t 3.5% or

absolutely. we have heading back up on 50 basis points just in the last few months. if you believe that economic activity, not only in the u.s., but around the world is going to continue to increase, then you could imagine rates getting into that range. thes rates get higher and yield curve slopes more positively, it is better for the bank. >> it can be as long as the underlying economy is performing well. so, from our perspective, a positively slow yield curve and slightly higher rates are good for the company, they are good for the industry as long as underlying economic activity is still strong. francine:, was just still with us is richard turnill. it is a very simple chart. the most important chart of the year because it is a 10 year treasury yield.

when it breaks out, is that it for the fed yield curve? richard: the yield curve is going to stephen from here because we see the short end of the curve now the market is slowly priced in. three further interest rate hikes in 2018 we think that is the correct interpretation. the fed is on a steady path. the market has fully adjusted to that which means there is limited scope in the near term for short-term yields to rise. yields.at longer-term our view is the path is higher because of growth in the u.s. is strong. because we are seeing inflation making a comeback. we are now seeing a significant increase in bond supply coming in the u.s., more focused at the long end of the curve. guy: when does the curve invert? >> several years away.

guy: 2? 3? >> we don't see the inversion of the curve. we still see that in at least two years away. i think we have to recognize that with the large fiscal boost that the u.s. has implemented, it is great to run certainty around that. what we are seeing now is inflation is rising relatively gradually. the fed is in no hurry to end the yield curve. they don't indicate that they are behind the curve. look at the stock market. doesn't indicate the fed is behind the curve. over the next few months, we are going to see steepening, rather than flattening. that is the environment that bank stocks will do well. francine: richard turnill stays with us. coming up, st. petersburg presidential plenary, russians president speaks along his

french counterpart and the imf managing director. it is an all-star panel weighted by john nichols -- micklethwaite. this is bloomberg. ♪

francine: this is bloomberg surveillance. let's get to bloomberg business flash. oil and gas producer has rejected a $10.9 billion takeover offer by harbor energy. the committee says it is terminated all discussions with harbor. --santos says the offer does not represent the full value of the company. obama have achelle new post white house career. they are going to produce programs for netflix. the top eight video shimming service says the company despicable will produce its first mix of programs which could include programs, documentaries. terms were not disclosed.

that is your bloomberg business flash. thank you so much, taylor. mark carney is still giving his testimony to lawmakers. the pound stayed near 2018 lowe's. dk economy is weaker than expected -- the u.k. economy is weaker than expected. richard, we are talking about forward guidance, how difficult it is to forward guide and be data dependent. to central banks, overall take a look, they look to inflation to focus on growth. richard: i think forward guidance is important. they don't ignore inflation. what we are seeing is market reacts to very short-term data. in the u.k. with headache period of softer data. how much of that is the weather affect we saw.

some reduction in interest rate expectation is appropriate but when we look forward, it is clear the path should be gradually higher from here. it is in control, but it seems to be. richard: policy of steady raising interest rates, taking a step back and focusing on the macro environment seems inappropriate one. the u.k. economy is growing, albeit slowly. inflation is still above target, albeit gradually coming down, in part because sterling has been stable over the last few months. opportunity to gradually raise interest rates. webex it does is it puts -- what period ofit it puts a uncertainty. francine: the put anything in u.k. assets right now? richard: when we look at the u.k., we do see attractive opportunities within the stock market.

the energyo argue sector is globally starting to become more attractive in the u.k. market gives more exposure. more investors are starting to add to their energy exposure. when we take a longer-term view, we find more attractive opportunities in emerging markets and the u.s. francine: richard turnill, thank you so much. coming up, bill blain. he is the head of fixed income strategy there. he is the head of capital markets. we will talk of trade and ethics and stocks. -- fx and stocks. this is bloomberg. ♪ mom you called?

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tensions, china will cut the import duty on passenger cars. automakers open higher in europe. a time populists push their choice for prime minister, a law professor with no political experience. boe governor mark carney defense the central banks policy, saying guidance is conditional on the outlook. good morning. this is "bloomberg surveillance." i am francine lacqua with guy johnson. tom keene has the morning off. we have been looking at what mark carney is saying about inflation versus growth. we are close to an italian premier, but not quite. we are looking at any selloff on treasuries. guy: a lot of supply coming through in the treasury market this week.

there is guidance on interest rates. there is a lot of questions about whether the interest rate that was predicted and did not materialize is good for the british consumer. did you go out and get a new mortgage because you are worried your floating-rate is going to change quite a lot from and then your interest rate doesn't rise? francine: it depends on whether you are data dependent or governor carney dependent. it is a difficult thing. let's get straight to bloomberg first word news. taylor: just as the threat of a trade war with the u.s. recedes, china has agreed to cut car import tariffs from 25% to 15%. that will help american automakers like forward and -- ford and foreign automakers like bmw. u.s. have agreed buying the ban on zte

u.s. technology. it would involve changes to management and potentially significant fines. a south korean national security adviser predicts there is a 99% chance of kim jong-un meeting with president trump next month. british foreign secretary boris johnson is hinting he wants tougher stations of -- sanctions on russia. sanctions onsed dozens of tycoons and allies of president putin. 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. francine: thank you so much.

this is what i am looking at when it comes to the market. a little sideways action when it comes to these european stocks. i am looking at currency pairings. euro-dollar 1.18. i'm looking at the 10-year yield, that is above 3%. i think we need to talk more about the fact that it is not 100% impossible we get new general elections this year, although i would say it is improbable. guy: please know. francine: it is having a little impact on the margins on pound. guy: the euro is trading up against the dollar. i don't know if this is a mark carney effect. i think this is a dollar effect. turkish lira benefiting. flowingsome gcc money into turkey. up around 0.5%.

this as the market continues to focus on venezuela. francine: some of the market movements are on the back of the italy government we may soon have. the time president is set to meet leaders of both houses of parliament today to consider the s nominationvement' of a political novice for prime minister. for more on this, let's get ,traight to francesco galietti chief executive officer of policy sonar, a think tank. hesitatingpresident in nominating conte? i don't think he is hesitating. he is doing things by the book.

he has consulted the speakers of the house before in earlier rounds. he wants to do the same in this final round. let's remember, the head of role inays a decisive these consultations, and he wants to remind everyone that he one.e i don't see any sign of hesitation in mattarella. francine: does he need to get five-star and lega to agree? ands this budget spending getting some reforms in check? francesco: several things being asked of the prime minister these days. we are shifting from de facto monarchy, matteo menzies monarchy in which there was only

one man in charge of everything and making decisions and pushing them through parliament to governments of pro-consuls like this one where they will maintain considerable clout government and the prime minister will be a skilled mediator to make sure the government speaks with one voice, an important task. that is the most important skill to me of the next prime minister. guy: good morning. negotiator, skilled manager of these parties that don't exactly see i die. how long will this government -- don't exactly see eye to eye. how long will this government last? francesco: it is not clear. both parties have a strong

interest in making this happen. we should expect some pushback. there are a number of obstacles that can be spotted on the calendar. there is a budget session later this year. majority at the senate is very thin. it is unclear whether forza italia will support the government or not. everybody is looking at the head of state to see whether he will refuse in extreme situations to sign off bills. i think it is more the ofilibrium in the two houses parliament that will matter and be decisive. should the markets be more worried that they are? ofs has a whole slew

constant is for euro integration . hand,sco: on the one there is certainly a new semantics that has never been used before, and it should not come as a surprise, after all these are two antiestablishment parties. four monthsaid if not years by both the league and five-star. the fact that they are putting everything in writing in the first place means we are not up for surprises. i think with a coalition like this one, it would have been much worse to not have a program and then to find out day after ir real intentions are. we know from the very beginning what the two government partners are up to.

much,ne: thank you so francesco galietti, chief executive officer and founder of policy sonar. us is bill blain of mint partners and david page of a axa investment managers. markets look at the anxious or not, is it too anxious about italy? is playingspect it catch-up. it is quite remarkable how quickly the populist coalition has come together. for a while then at fiscal stimulus coming through. concern wasght the within that spectrum. and muchare about debt more populous than explosive measures coming through. they have been watered down to

where we are now. i think the markets have seen that complacency, and there is likely to be more tension to come through in the first couple weeks. when we saw the portuguese government come together again after long negotiations, it took a while for the market to get used to that idea. i think the market will have to wait to see what the color of this government is about and what it is able to push through the italian parliament. guy: what do you think about ecb's? good bias? there is a lot of negative bias. i think we will see some kind of bounce. there are two golden rules when it comes to italy, the first is whatever it takes, and the second is the draghi put.

i suspect this is to remind politicians who is going to pay the bills at the end of the day, and they have to behave. that is why we are seeing this contract for government change being watered down significantly. francine: thank you. bill blain of mint partners and david page staying with us. if springat the i meeting, this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. australia's santos has rejected

a $10.9 billion takeover offer. the company says it has terminated all discussions with harbor. notos says the offer does represent a full value of the company. soaringf all tees are today. the french telecom regulator said le monde he is more open to deals now. underscoring its new strategy with competition. it is getting the hands on a of 2.9ong -- a catalog million songs. the seller is a consortium. sony's new growth plan is a son ontent.e on -- based on c

many as: he is seen by the architect for donald trump's 2016 campaign. steve bannon has condemned president trump's decision to hold off on imposing tariffs on china. prague aboutim in how he would handle the trade dispute. >> the best thing to do with china is a confrontation. they are already at war with us. we are firm in these police. we are not going to let you steal innovation and basically rape silicon valley. it is not going to happen. francine: that was steve bannon. let's get to kevin cirilli. also joining us is bloomberg's beijing bureau chief.

who is steve bannon speaking to? does the president listen to steve bannon anymore? does the trump base? kevin: that is a good question. he would not say who he is speaking with inside 1600 pennsylvania avenue. i have sources that say to me he's still involved in the messaging of the conservative movement, especially in the trunkst base of the movement. what's he ran -- trump movement. for has anpushing advocate in the white house, the navarro. over the weekend, you have the treasury secretary saying the trade war with china is on hold. that would suggest the president is listening much more to

secretary mnuchin. with steve bannon out there criticizing that, it would appear he is pushing for a manufacturing type of business angle rather than the agricultural or energy sector that the treasury secretary is pushing for. francine: we also talked about the robert mueller investigation. overall, the president or people close to the present listened more to steve bannon as the midterm elections approach. andn: the base of the party the president's son donald trump, jr. have grabbed hold of that political microphone to speak to the base. a former top advisor to steve bannon is now working for donald trump, jr. there has been a lot of shifting parts on that front. steve bannon is going to italy

next week to meet with the ultra right conservative leader in italy. penchant fora looking for populist conservative government. is beginning to speak out more publicly after we have not heard from him in several months. guy: can i turn to the trade story on a different angle. the chinese have lowered taxes on imported cars. what are they trying to do with that? >> i think they are trying to go ahead with various actions to say they are doing their part to move these talks forward. they have cut the import tax inm 25% to 15% effective july. this is on top of what we are hearing as reports that there may be a framework agreement for eal on the u.s. side.

in the last week, the chinese ended the investigation into anti-doping of u.s. -- dumping of u.s. sorghum. francine: know what eache side wants? >> the demands are great. from the u.s. side, they have put forward a $200 billion gap they want to close. it does not look like we will get near that, but the chinese have committed to buying significantly more amounts of u.s. energy, technology, agricultural products, health care products. the details have yet to come out.

there seems to be momentum for some kind of face-saving agreement for both sides. the chinese would like to have access to some of the technology that has been off-limits from the u.s. side because it has dual use of military use. we have not heard where that would go. probably nowhere. there are a number of demands on both sides that still have to be worked out. francine: thank you both for joining us. kevin cirilli from washington, d.c. ken willis from beijing. coming up, the former chief executive of aol to talk content , tim30 in new york armstrong. this is bloomberg. ♪

>> it is a different story. guy: the governor of the bank of england answering questions about the inflation report and his credibility. david page is still with us. where would you put his credibility at the moment? david: that is an unfair question. he has struggled with you. the bank says we are talking to the public. we're talking to companies. the bank was was quite heavy-handed with the message in february. markets that they were being

spoken to. markets have priced in november almost before then. mayt of people shifted to on the back of that week. the fed has gone through the same process. before ther 2015, fed started tightening, it's communication with the market was not great. we are just learning how they are going to communicate. francine: is there a communication problem? than thed half easier boe because we don't know the impact of brexit? david: quite clearly, we are concerned about the impact of brexit, but we want to know whether the bank is going to be tightening or not. the bank is realizing they have to rely on the data and give markets a little more leeway. what they did in may is much more appropriate. we think this is going to happen. if we see the rebound we expect,

we will see a rate hike come through. guy: david page joining us from a axa investment. bill blain of mint partners will stay with us. coming up on daybreak, was a on almeida willse join us. p.m.is happening at 1:30 in london. back, we will carry on the conversation and learn more about this man. not that man. governor carney. we will be back listening to what mark carney has to say. this is bloomberg. ♪

francine: this is "bloomberg surveillance." guy and francine from london. tom has the day off. let's get to first word news with taylor riggs.

backed president trump off from imposing tariffs on chinese goods because of white house disagreements on trade strategy. the president also gave in to pressure from farm state republicans worried that the chinese plan to retaliate against u.s. agricultural exports. president trump was also worried the trade battle would hurt negotiations with north korea. the administration has put new pressure on the venezuelan administration of nicolas maduro. purchasings banned venezuela,by including the state-owned oil company. testifies inrg front of the european parliament today. he will again take responsibility for privacy failures such as the data leak

to cambridge analytica. 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. francine: thank you so much. mark carney has defended the bank of england's guidance after facing criticism that well articulated signposts failed to rise --a materialize. >> inflation came in lower. momentum wasnomic lower, and the hard data came in lower as well. backcommittee, we stepped and looked at that data and took our own assessments. francine: that was mark friday, governor of the bank of england testifying in westminster

earlier on. still with us, elaine of mint partners. -- bill blain of mint partners. i feel have to say terrible for mark carney. everyone gives him a terrible time for poor condition. that is what central banks do. they always get blamed for poor communication. it all comes down to things like bad weather, and the economy is tired and exhausted. the consumers, the squeezed middle are struggling. guy: how did you describe the economy? bill: exhausted and tired. the squeezed middle cannot afford to spend anymore. yesterday, i think was marks and spencer's having to close stores. this is not an economy that looks like it is going to burst out. francine: it is not too bad. bill: it is not good either.

does not exactly white-hot. guy: that is very friday sutherland. not too bad. francine: we did not have the following off the cliff elections. will they ever come true? the trend downwards, but we won't really feel pain, or will it suddenly as lower quickly. bogeymanxit is the that will get blamed for everything. i don't think it is a concern at all. that does not get away from the fact that we have had a long, slow recovery, and people do not have the cash in their pockets to drive that recovery at any kind of speed. that is why it is still so concerned. -- constrained. that is why it only takes a small drop in the data to change expectations, and then it is easy to blame the central bank for getting around. guy: he knows what's going on.

bill: i will give him that. guy: he can see the volatility that will be generated by brexit and the things that will give him troubles. it is a small economy that will be buffeted by different factors. why does he come out and make these predictions? why not stay silent, not say anything. say we are data dependent. bill: that is a fair comment. it was the pre-brexit comments that was strictly unnecessary. that created the reputation of the unreliable boyfriend. he is getting it every time he says anything. guy: why say anything? central bankswhat have to do. i thought it was interesting that he was trying to communicate with the consumers. it is the market that is going to react. the market has it against him.

i think he's doing a fairly good job in trying to constrain us. francine: this is his job. his job is to go to pensioners, savers in the north of england, the easter egg hunt, the west of up.and, mortgages may go that means as a household you spend a little less. mortgages may go up, but what happens, they come down to the lowest historical rates. if we take a look at oil prices and the way oil prices have effectively doubled. the effectsng about coming back into the economy. i think it will happen more quickly. we will start to see inflation generated, but not in the positive way. francine: will we see elections, snap elections in the next 12 months? bill: as guy said earlier, heaven for bid. protect us from

brexit, the fact that we don't have to have elections. that would save us 800 million quit. -- quid. guy: it will be interesting to see how the market prices out whether we will look through it. when you look at the forces buffeting the u.k. economy now, it is interesting to see the effects. euro has slowed down a little bit rippling into the u.k. economy. i come back to carney. i wonder why he is doing what he is doing. i wonder whether with a new governor, he reaffirmed today he is going to be going, whether a new governor will learn these lessons? can we expect less communication in the bank of england? bill: no. i will go back to being mark carney's defender here. there is not much else they central bank governor can do in these very flattish economic

conditions rather than watch the data and respond to it. guy: their models are not great at predicting economy. bill: nobody's models are great. nobody has gotten it right. we are all looking for signs for sickness global growth continuing. -- synchronized global growth in, but we keep running into speed bumps. guy: what do i do, i pare back on my spending. it would be interesting to see how quickly the banks pass that on. if he communicates that rates , he is acting as a drag on the british consumer, and if he gets that wrong, he makes the weather. back he has pared consumption with the comments.

did we see an uptick in spending? we don't know yet. it doesn't look like it. francine: are there any values, if you look at pound, you could argue now is the right time to get into u.k. markets? bill: u.k. rates remain perilously low. sterling is playing a game that is based on dollar and euro relationships. it is difficult to argue that there is anything particularly cheap in the u.k. economy at the moment except long-term prospects. i think they will look much better than europe because of the italy factor long-term. guy: i have one. oil stocks. take a look at the ftse 100. an international stock market that has nothing to do with the u.k. anymore. francine: great. bill blain of mint partners staying with us. on your commute, tune into

follmann across the u.s. on sirius xm. this is bloomberg. ♪ . ♪

taylor: this is "bloomberg surveillance." it is the biggest takeover deal in turkey since 2012. the largest bank in dubai has agreed to buy a unit in turkey, the price $3.2 billion. banks are expanding in markets

like turkey because they face limited expansion opportunity at home. is looking to -- adobe has agreed to buy e-commerce company which builds and runs web stores to handle online purchases. barack and michelle obama will produce programs for netflix. the top paid video streaming service says the couple will produce a diverse mixture of programs including scripted series, documentaries, and feature films. that is your bloomberg business flash. thank you. mark zuckerberg is set to testify before the european parliament today. he will again take

responsibility for the data leak to cambridge analytica. for now, we're joined by our eu legal team leader. good morning. what kind of questions is he going to get? are putting out statements saying they will look beyond his nice words. they will not focus on his apologies. they want to see what concrete steps they can get him to talk , tot to comply with gdpr come to a more european view of privacy. guy: in many ways, this testimony matters more than the testimony he has given in the u.s. europe has become the data police watchdog. >> we are much more concerned about privacy here than in the u.s. regulator looking at the cambridge analytica scandal is the ico in the u.k. that will be the first test to

see what a regulator thinks happens. francine: how can they be regulated? european, or self regulated? is it worldwide? >> in europe, with a have been trying to do is have one-stop shopping on privacy regulation, which is where the country's place of headquarters is. for many places that is ireland. france.is germany and understand is we the testimony, mark zuckerberg will say two things, first they did not sa take it seriously enough, and they are changing. the other one is they will continue to invest in europe. what is more important for the economy? think -- i wonder

how people will take the investment argument at this point. is that a cudgel he is using? he probably doesn't mean it that way or has said it doesn't mean that way. lawmakers will wonder. him what are the risks for today? what is a win, what is amiss? >> a win is if he gets through it the same way as the u.s. congress. it will be much easier for him in some ways. this is a 75 minute one-stop talk. in the u.s., he did 10 hours of testimony before congress. he will probably not get that many questions he has not heard before. it will be interesting to see if someone comes up with a new line of questioning. our euank you very much

legal team leader. bill blain of mint partners is going to stay with us. gtv you can browse the library of features here on bloomberg television. this is bloomberg. ♪ bloomberg. ♪

francine: this is "bloomberg surveillance." francine lacqua with guy johnson in london today. tom keene has the day off we are getting more news out of china to bring to your attention. i believe this is a radio interview. we see the premier saying china will strengthen its intellectual protections. msn this is intellectual property protections. overture to the u.s. as we saw tensions ease with the latest massive cut to car tariffs, which will mainly help european car producers. still with us is bill blain of mint partners. this is the mint charts. we are basically looking at

foreign reserves in indonesia, foreign reserves in the philippines. is by a number of factors, fed policy, rising dollar. what does the dollar do from here? bill: whenever you get the rising dollar, any emerging market economy is bound to suffer stress unless they are a massive producer of commodities. we are seeing commodity demand rise. that will help lift them. debtwise they are repaying in dollars, which means they are seeing competitiveness decline. we are seeing a massive rally in expectations of emerging market economies over the last few years, and now as part of this global synchronous growth story from last are, that is not so much the case.

they are not expected to outcompete. this suggests these economies will not fall into the same trap as some of the really struggling economies relative to the dollar. francine: is it economies that just issue debt in dollar or economies? bill: it is not struggling economies. what is good to happen to the dollars? moment, the most important thing in the world is the 10-year treasury rate. it is the only government bond rate that has a real positive interest. everything else is below inflation. i would say emerging markets. let's talk about in g20. you had every single penny, invested now will

be chasing the u.s. dollar bonds market. you are saying people buy into the u.s. bond market, which has been supporting treasury yields staying lower than we might have expected. there are concerns about the deficits. i think there is a trump effect. it is positive. one of the clever things that is going on, you can have an economy doing well with all search of positivity in terms of rising yields, but you keep the currency low because you have that concern. low currency is very positive for any economy in terms of production. -- we have a very peculiar bill: we have a very peculiar set of circumstances. we have a low currency. andwant an exact hour date?

i think expectations that we are about to head into recession, i far of theare well mark. i think the whole global economy will stay strong. 18 months to two years. guy: when does the curve inverted? bill: not for another 18 months. francine: is that because the fed does not want it to or because there is not an impending economic recession? bill: there is not an impending economic recession. we are likely to see a resumption of gradual slow growth. the u.s. will benefit from that. francine: benefit how? foreign investment, relative to other markets they will perform better. bill: interesting question. we will see continued growth. we will see the economy outperforming. we will see 2% growth rate.

we will probably see better. we will see continued pressure on the employment sector with pushing up wages. that is going to be one of the issues the economy has to start from. we still have this enormous fiscal pump going into the u.s. economy. i think these things are all going to drive very positive results. that is going to help the stock market as well. yes, we will see trouble in bond markets. i think if it wasn't for the fact that we have the japanese and european going in and buying the treasury market, treasury yields would be much higher. we are not yet at this stage where we have to worry about the stock market's relative to bond yields. guy: a little breaking news over the last couple minutes. we saw positive buying in turkish lira, and now that is coming unstuck. in the turkish banking

sector a little earlier after we are heading in the opposite direction. we have a turkish lira dropping pass a record. t a record.ing pas i cannot say how many times i have seen dropping fast a record for the turkish there, but there have been many of them. the turkish lira continues to weaken. there was serious debate on the online blog here at bloomberg about how far this would continue to go. that continues in the market of what this story will look like for turkey. we have a rate decision coming up. the market is pushing the central bank. francine: we have the election. guy: the election is on the 24th. we have a rate meeting before that. the market wants a rate hike. francine: we were looking at the election to downgrade turkey, which would have a lot of implications. guy: as early again was saying i am going to take over

decision-making after that election. the market is pushing aggressively for the central bank to raise rates and raise rates many basis points. francine: we will have a look at anything to do with turkish lira. bill blain of mint partners. thank you for joining us. lisa abramowicz and jonathan ferro on bloomberg radio. we have a little change when it comes to foreign-exchange. guy johnson joins me here in london throughout the week. we will go to treasuries, the fed minutes, and still looking at forming the government in italy. we have a little bit of pound movement on the back of possible snap elections this year. do you believe it? i don't know. this is bloomberg. ♪ is bloomberg. ♪

will cut the import

duty on cars to 15%, the big winner in europe. come before another storm paired dollar frank takes a break. boe officials lean somewhat hawkish. willfor impact, treasury auction two-year notes. >> welcome to "bloomberg daybreak. i'm david westin. i'm with alix steel. alix: happy tuesday. there is stuff happening in the market. u.s. helping european automakers. david: president trump has a victory in china, and it helps the europeans. alix: the story is the dollar column. s&p futures. euro-dollar up .2%. emerging-market currencies, and the lira hitting another record low.