francine: bond blowout. the italian two-year yield hits a 13-year high after the election. we're live in rome with the latest. oil its its largest losing streak since february. and where washington is such a settlement over a release tied to airbus. could the u.s. avert millions of dollars in sanctions? welcome to "bloomberg surveillance."i am francine

lacqua here in london . these are your markets. it is definitely a risk-off day. stoxx 600 down from 1.2%. the italian two-year yield at 7%. people are concerned about a periphery crisis coming back from the forefront, like the one we saw in greece. they are trying to maneuver ahead of the election. we do not have a timetable for the. it could happen as soon as this autumn, maybe september or october, or early in 2019. the picture for the euro-dollar, 1.1568. missed the focused on italian banks. they are getting hammered today. the limit is 75%.

paschi, afteri the populist party so they should think about nationalizing it, and that yesterday was down some 7%. coming up on "bloomberg surveillance," we will talk italian bonds with the chief investment officer at rathbone. then we are joined by yanis the former finance minister, and that is my morning must-read, he wrote a great opinion piece in "the guardian." let's get to the bloomberg first word news with taylor riggs. taylor: francine, mobilizing for even as carlo colts rally puts together a cabinet. the disconnect between the pro underscoreu. forces the country's widely political goal in with a general election

november, theyas are talking about a new period of uncertainty for the area's third-biggest economy. kim jong-un asked one of the top aides to the u.s., holding talks with a summit with donald trump mixed mustard that is according to people familiar with the user -- issue. the nudes agency reported -- the news agency reported the secretary of state will meet mike pompeo on this trip. public fernandez to cause the at the country's central bank in pablo fernandez de cos ta appointed to the country's central bank in spain. he will be ratified. the bank of england addressing

unrest when the u.k. bank and the central treasury. the institutes are loggerheads over the regulation after brexit. 's depth and governor for stability has fallen out over concerns it would give away regulatory control after the eu rejected the u.k.'s original proposal. and the russian billionaire owner of chelsea football club has reportedly become an israeli fan. it's passport holders can travel without a visa and can stay as long as six months. global news 24 hours a day on on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am taylor riggs. this is bloomberg. francine: thank you, taylor.

let's go back to the story of fell 4.6% in milan. yesterday, monte dei paschi down. it is halted after falling more than 5%. preparingpulists are for elections as early as september, despite the effort to put together a cabinet. the risk is reverberating through the markets, sending the italian two-year yields down to the lowest since 2013. how deep is the political turmoil? joining us now is bloomberg's rome bureau chief. first of all, what is the talk on the ground? i do not know if people who means that the

next election by the populist party will do better than they did last time. right, francine, hello, i think a lot talk about who seems to be with president mattarella and who is against. so the concern everywhere is that when my vote even more strongly for the populists, and squareill be back to one, and in between now and then, there is all the this isnty, so clearly what is causing all of the uncertainty and all of this trouble. , when youalessandra look at the papers, what are they saying? does that influence the way italians vote next time? alessandra: yes. the newspapers are actually

cottarelli coming in, looking like the people's man. headline and all of the italian newspapers, this is the picture. is doing the best he can come up at his government is not likely to last, because the populists have said that they will vote for against him. what will happen likely is his government is sworn in, then he goes to parliament. the thought is that the fed will vote against. we go to elections as soon as possible, as you said, likely september. are pushing for the first week of september, but it will be a bumpy ride all the way to september to a possible date for the election. francine: i am looking at some of the propaganda of the campaign, the league

putting out "we will take care of the italian people." , it seems like the markets are down, the ftse is down 3%, we have not seen this in almost two years. what are people worried about? they are also worried about the president being impeached. alessandra: the president being impeached looks unlikely. they are speaking to their base. that is what he is therefore, he is there to look at the list. president is saying that they did propose another. it has gotten very nasty, what people are worried about his the sixth -- the situation is growing out of control. levels we haveat not seen in over four years. it is creating a panic in the

market industry. aey are also calling for change on june 2, which is this weekend, which is crowds lining the street. we are not know yet what will happen with the president with the populist party. francine: thank you so much for joining us, bloomberg's rome bureau chief, alessandra migliaccio. joining us now, julian chillingworth, and another guest, julian, to you, why are we taking it so badly? politics, something with talked about on this program many times, has not particularly been high on the agenda of investors until this year, and now that we see the slowdown of , that is theist sort of backdrop, and i also think that again, this came not out of left field at all, but i

think the markets were unsettled by the turkey issue. they have been unsettled at the royal the week by possibly losing on friday, and election in spain, and on top of this entire problem, some people are generally around the periphery. francine: what is the biggest concern here? is a targetat between the ecb and italian banks, or the fact that the fed has moved against this proposal from the front and's minister -- the finance minister commodity not know that means the populists will win the next time there is an election. guest: that remains to be seen, but it is a bold move by the president. he has precisely said that there are enormous risks of a a finance event,

minister appointed that would cause a sea of concern about italy being push out of the markets because of the uncertainty in whether he is right or wrong remains to be seen for this is a historical event. it is without a doubt something that the italians come as you heard earlier on, some believe is the right thing to do, and some believe it is not the right thing to do. here, but i think the president thought if there was a point, the finance -- if he were to appoint a finance minister who was so clearly on the record, that would have facilitated the event. that would not have been good for the euro, the rest of us. easy topens next is not predict, but i think president wanted toa have a proper discussion of italy as a member of the euro, and to do that, you have to have a mandate. francine: i am looking at the

call that the five-star movement would be a 29.5%. the league would be 27%. the fact that the president stopped because he would be concerned it would be a finance minister that is very eurocentric, does it play in favor? maria: it could be. speculative.is i think it is important to have a discussion about the euro. that is the important thing. it is not clear what the mandate is. people asking, do you want out of the euro? -- you might get surprising results. they need to have the time to discuss properly and then put it to the vote. what you do not want is simply for the markets to decide. that would not be fair to the country or to the public. what kind of impact does it have on european immigration? do they look at this and say you

must be more careful for what happens in european integration next? maria: i am not quite sure. if you have a country like greece, which is very, very small economically's eating, affecting the whole of -- economically speaking, affecting the whole of europe and the eurozone, it has a devastating effect if it goes the wrong way, and i think that is why resident mozzarella -- president mattarella's decision is not just important for italy before the whole region. there will likely be a debate about the future of italy inside and outside the euro. francine: maria, is it too early to say, to turn eurosceptic? we had the referendum on euro participation, but overall is a country, just like greece, that would break to stay in the euro, or do we not know? maria: i think that is an

important different here, and greece was really quite clear after the events that the public does not want to exit the euro, so the public did not have a mandate to bring the country out of the euro. it is not so clear in italy. i think the numbers are a bit , especiallysplit when you see the survey, but i think everyone will concentrate on the election of this issue, then people will speak about what they really believe about the ability of the country to stay in the euro. my workence, as some of has shown, that it is not the euro that brings the problems in th italy, it is the ability to reform. and again, there is a difference here with greece where the mandates staying in the eurozone was very, very clear. here in italy, you see that the mandate is not as clear, of course we have not had a proper

debate on the issues. that is why it is important for the next three months, the summer, or whenever the elections happen, to discuss the issue and decide. does thisjulian, impact policy normalization? julian:. yes they are going to be very reluctant to tighten monetary policy to four. they will undoubtedly want the italian populist on the side, and i agree, it will become an active debate through the whole of the summer, and if the populace party, the five-star and league, run to exit the euro campaign, it is quite a high risk campaign to run, because they are looking to serve this morning, the italian population pretty euro-positive overall, so therefore i think it could be quite a high-risk campaign to run on that mandate alone. francine: thank you so much for joining us, maria demertzis,

bruegel's deputy director, and julian chillingworth of rathbone. straightor the fifth a , the longest losing streak since february. and the iphone maker will switch next year. we will bring you the very latest. this is bloomberg. ♪ . this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua here in london. is setces -- u.s. crude

forth sixth day of losses, the largest drop since february, a stark turnaround from earlier in the month after u.s. president trump decided to reimpose sanctions on iran. at what level can we actually find relief? joining us is a bloomberg correspondent and julian returns.orth you have a shale producer looking to balance. we know that saudi arabia wanted to put the price around $80 a barrel, so shale producers worked on $75 for rent. consumers will compare prices more in the $60 to $70 range. now we have a new level. in the past, it was what was the price to make money?

now it is -- what price can the consumer afford? francine: how big of a mess is the geo and opec, because you have russia facing problems? javier: it will be quite messy, the june meeting. it is not only opec. we have a group of 24 countries. you need to find an agreement, bigwhen you find the two grown-ups in the room in a way, saudi arabia and russia, making decisions way ahead of the opec meeting, to where we will find the potential that actually nothing has been decided, that we are going to consult everyone, and we will have a messy opec mooting june 22 in vienna. at the end of the day, with every opec decision, what markets really want the saudis and in this case the russia, if they want to increase production, they will carry on.

but we will see a quiet protest from some of the smaller countries. it is going to be entertaining. francine: i know you were covering it for us. julian, how much of you change the models for what central banks will do? or is it through inflation brought on by oil prices? julian: i think to a degree, they will look through it, because they will say it is a temporary blip, and not with their longer-term goals are, which is to get a sustainable low level of inflation. i do not see it in the short-term a voluntar volatilitd something that will be a factor that will decide longer-term monetary policy, but i do think what is fascinating at the moment is the dollar and the oil prices were going up together. the dollar is holding up, oil bit, butming back oa it will be interesting to see what happens with the dollar as we go through this discussion as well. francine: this is my blasts

chart. you can see wti, brent, oil. obvious, when you look at brazil, you have a massive truck driver strike, partly brought on by the price of oil, for petrol, that is having a big impact on sub commodities and meat prices. javier: it is all connected to the truckers are talking about high diesel prices come obviously related to the fact that oil prices were closer to $80 a barrel just a few days ago. it is affecting not only the share price of petrobras, with a brazil beop, but also one of the largest importers of things like soybean and also for meat. we have seen problems moving the andean into those ports,

this is a season on which we rely on latin american soybean exports, because the u.s. is still planting the soybean, it will no closer to november, december. it will be very bullish for soybean. the good news for consumers for soybean, and that means everyone, because we use soybean to fats and livestock, so anyone who consumes chicken or meat will be affected. we have nowhere record levels. ry far away to allow would-be be much surprised if we get higher than we are today. francine: javier, thank you so much. petrobras saw its biggest fall in the share price or a long time. s bureaulas, bloomberg' chief correspondent. olympic contingent we are seeing from italy is spreading to

ofund other places -- a lot what we are seeing around italy is spreading to run other places. italy's two-year yield, down 2%, the first time we have seen that since june 2014. on to tech and shares of some iphones, the price fell in asia following a report that apple will use next-generation screens for all of its new models next year. display fell down 8%, sharp down 3%, those companies mass-produce oled screens. apple saying the switch is unlikely to happen in 2019. joining us now is alex webb, who writes about technology for and julianpinion, chillingworth stays with us. --x, it is granted have you good to have you. can i switch?

alex: it is like the chicken and the egg. the biggest are the two manufacturers, samsung, using its own funds, and apple might get what is left over, and the full display is used in the apple watch. the reason these are falling in asia, those that cannot make the theydisplays them if cannot make it, that how is apple going to get the technology? that seems to be the strange economy. francine: can it happen very quickly? alex: it takes 18 months of two years to really narrow that down to scale, and i think they just started doing it at the end of last year, so yes, it is possible, but there is no guarantee it will be there just yet. francine: julian, quickly, do you like tech stocks? julian: we do, and we continue to think in number of them remain attractive. i think apple itself is an

interesting, attractive account, and we generally think that investors should continue to have a position in tech. francine: thank you both for joining us, bloomberg opinion tech columnist alex webb. julian chillingworth stays with us. a french playmaker make a settlement deal with the u.s. to avert sanctions? this is a huge deal for italy. we are seeing a lot of this reaction. in fact, the market overall is actually quite risk-averse. we are seeing the two-year yield dropping for the first time since 2014. this is bloomberg. ♪ oomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. economics, finance, and politics, this is "bloomberg surveillance." i am francine lacqua here in london. these are the markets -- they are down.

it is definitely a risk-off kind of move, a little but affected by what is happening in italy. first of all come a let's bring up the board come a nice snapshot with what is going on. you can see the ftse down 2.1%. italian bond yield surging is further risk takes central stage repercussions of all possible integration, banking union, having an opinion for the rest of europe. we did have quite the weekend political turmoil. that continues to reverberate through the market. by not thought is that allowing the populists to form a government, they will do much better at the general elections that could happen in september, october, or early into next year. a lot of the main banks in europe also halting to the downside. thea monte dei paschi to downside after losing 7% last year.

i'm not sure what we are showing banca generali, but we will get euro credits of for you as well. let's talk about spending across the u.s. econom turmoil and on tictoc, donald trump saying he will let zte stay in business, find out why scalable has hit one point $2 billion in asset management. joining the ranks of the largest independent firm, and our front stories on the bloomberg terminal, it is all about political tension, and how italy and spain are both in investor'' crosshairs. readability popular backlash across the nation. i am looking at spreads between the italian bonds. let's bring that chart up. it has actually widened quite significantly.

and to's get to new york bloomberg first word news, here is taylor riggs. taylor: north korea's leader kim jong-un has dispatched one of his top aides to the u.s. for talks ahead of the summit with donald trump next month, according to a person familiar with the issue. beforthe former spy chief will be the highest ranked north korean official to visit the u.s. in almost two years. he will meet secretary of state mike pompeo on this trip. spain has nominated pop low fernandez acpablo osta to head the bank. the bank of england has denied reports that there is a rift between the central bank and the u.k. treasury after the "financial times" reported that the institutions are at

loggerheads, citing unnamed officials, the ft says the boe governor for financial stability has fallen out with the treasury it will give away regulatory control after the eu risks a proposal. and the russian billionaire owner of the chelsea football club reportedly becomes an israeli citizen. that comes after a delay in renewing roman abramovich's visa. an israeli citizen can travel without a visa and can say is much as six months. global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am taylor riggs. this is bloomberg. francine? francine: taylor, thank you so much. is starting talks with eu to resist settlement over illegal settlements -- subsidies

for airbus. that is according to a person familiar with the matter. joining us now is been cast, katz,erg's -- ben bloomberg transportation reporter. : it came unexpectedly. we were expecting the settlement by the u.s., coming forward, and proposing sanctions against the eu as a result of a legal substance, and the result was a proposal to come forward and say, you know what, we are prepared for potentially billions of dollars in potential trade and tariffs against the eu, on all gains, not just against airbus. francine: so then why do we see the u.s. actually being a level friendly -- a bit more friendly?

moment, we do not have a clear answer from the u.s. there are of course global trade scenarios at the moment. from the airbus side, airbus is have beensed and arguing for a well there is not theyis for sanctions, and have made a profession since a wto report earlier this month found that they had not sufficiently come up with a all, it, so on all in is an interesting case for over a decade, and this is a significant development, one that may result in a peaceful conclusion. francine: what happens next? ben: this online at the moment is not totally clear. we are still waiting for the eu in the u.s. to actually sit down now and talk.

that will probably be the next step, if they agree on the actual meeting. airbus has already said that they support these talks. but if there are any they have said they would be prepared to sit down based on a list of preconditions. whether that will be a trump point remains to be seen. francine: ben, thank you so much, ben katz. i am a little distracted, because i'm looking at a chart from italy. 1.15dollar dropping 54, the lowest since july. we have a spread for you. we will bring that shortly. if you look at the spreads, you see the italian bond yields and of course the german bunds. the spread has been widening quite significantly.

we have had a political week in turmoil. yesterday, a lot were closed, which means we had trading volume, and all the market anxiety is coming to the forefront today. ing, and itrally is having an impact on yen. china is planning to stop a limit on all numbers of children that a family can have. that is according to people familiar with the matter. the move would be an historic end to the world's second-largest economy. joining us is a professor at london's school of economics. joining us again is julian chillingworth from rathbone. thank you both for joining us. you join us on set, and it is the first time that the child limit was going to be suspended, and at the time, you said the 65, 10 years. are they just trying to make things -- this takes 5, 10

years. are they just trying to make things go faster? familytwo children per was the likely scenario, and putting a cap on that is perfect, because there are some families who want to have three children, and some want to have not, so by putting a caps on two, those who want more will not be able to. but still, it is not a matter of taking time, there are lots of things in the external environment that is not conducive for families to have lots of children and the urban areas, like housing crisis and the space is limited, like education costs, which are the competitive reasons that this has gone off the charts. urban fertility guess what you want to promote, because that tends to be families higher educated and living conditions to support children, so i think it is a good move. unfortunately, last week, the

one-child policy -- and i am the first generation of the one-child policy, that era -- fundamentally change the social and family fabric of the chinese society. francine: we have another great story, the shadow banking crackdown in china, the story about trade. what do international investors misunderstand most about china? prof. jin: i think that the government is dead set on reducing financial vulnerability in the system. that is a big move. notink the legitimacy rests so much on growth but on maintaining the stability in the financial system. it is really time to cut down on these implicit guarantees, because people have just lost the sense of what this means. they think they can invest in a bunch of projects, and they will get a guaranteed safe return. that is very dangerous. that is risk-taking, even on the household's part. but it is a good move,

means tighter credit conditions for lower-rated companies. for largehe era soe's to buy stuff offshore, they will start shedding rather than acquiring, so that is over. do they also want to rival the dollar, reduce currencies? does that take some years, no matter what happens? on trade, are you expecting a revolution between the u.s. and china, and what does that mean? julian: i would say we are currently in markets are generally pricing in an accommodation. i am not sure it is a resolution, because a discussion will be ongoing between the u.s. and china for many years to come. as far as on trump is concerned, and his own trade negotiation, he wants to's show that he -- he wants to demonstrate that he has gotten something out of it.

this is talking about short-term policies, not longer-term solutions. francine: keyu, if the trade tensions escalate, willoughby but for china? prof. jin: i do not think so. it is a good deal for the u.s. and an even better deal for china in the long run. that is because it is time for china to open up. it will be better if we reduce wine,riffs for cheese, and cars. two cups of the chinese market is not make sense at all, because it is not attract the best companies, it attracts the third, fourth rate companies which need china to prosper. domestic reforms have been so difficult that it requires an external shock to really get china's structural reform to start, and it reminds us of china joining the wto 2001,

arguing that a decade of fast which were soe's, hard to rein in under domestic forces, finally came under discipline. do wene: regarding zte, know if that is part of the trade deal, or do we view it as different? prof. jin: it is a story that tells us, that reminds us that china needs to abide more by international standards. it also tells us that actually the kind of trade and positions on china would only increase competition, make chinese companies much more competitive, so in the long run, it may not be so good for u.s. companies after all. francine: thank you so much, jin fromn -- keyu london school of economics and julian schilling with of rathbone. theng up next, we will have bank governor.

that is of course happening live in rome. in the meantime, italy's stock market extended its five-day losing streak among political uncertainty. bloomberg's , chief, joins us now. on the they got halted downside, and monte dei paschi halted on the downside, why are investors worried about italian banks? dan: well, i think there are a couple of reasons. equities, banks, which are holders of italian debt, reflectingebt, or the losses that you have seen in the bond market, and then i think our top of that, the general nervousness about where this political -- unprecedented political crisis is headed. one thing for sure is there will probably be another round of elections, and so we are going

number one, ably, run-up to the election where it confident, and then the risk that we will have a similar result as the march for outcome. 4ancine: dan, -- march outcome. francine: da talk about monte dei paschi, the populistn, saying they are trying to create a government, talking about changing the mandate of monte dei paschi. is this the bank that is most under pressure? dan: it was one of the weakest earlier this morning, with the ,umber one and number two banks yes, i think they made comments about whether or not the bank's

management leadership was going to be replaced, that its mission would be changed. there has not been any recent talk of that absent the collapse a the attempt to form populist government, so it remains to be seen kind of where that theme is going to be headed in the next few days. francine: dan, i do not know if yo italy is eurosceptic are whether you have more insight because you on the ground, but if italy a string more eurosceptic, it was actually part of the platform of -- is turning more euro septic, it was actually part of the platform of league, is it turning more? dan: yes. i think there is no question about that, and that is the key question that has to be resolved during the campaign. this whole issue -- is italy really solidly committed to remaining in the euro?

it is going to be probably at this point the key campaign issue, and both populists movements, the five-star and the be muchwill have to more forthcoming about what those positions were, because it mask over defining exactly what their position was in the previous campaign, instead focusing on immigration, for example. so that rhetoric over the next few weeks and months is really going to be crucial, i think, in determining market sentiment. francine: dan, i want to bring our viewers and listeners up-to-date with some of the market news. 10-year treasuries in the u.s. rallying alongside poor european bonds. is political crisis deepening, we also talk about a potential constitutional crisis, really triggering risk-off trading worldwide. the yen, the region's stocks are

selling off, and the dollar is advancing. the stronger yen also a session of decline. we are looking at the 10-year yield. i am sure we have a few other's boris we are at. julian chenoweth -- julian chillingworth, would you look at this? julian: no, because they need to reform and look at the debt profile. i think we have kept away from an italian banks, and we will continue to do so. two,ine: there is target which is the real-time growth for the eurozone. do we need to worry about target to for italian banks? julian:. yes. francine: now?! julian: [laughs] i think we have other things to worry about now, is how i would put it. francine: again, you are on the ground, is there anything the

market can do to help the slide? reassurance come from, if it comes? dan: we have seen attempts of it reassuring, it's coming -- reassuring comments coming. bank byof the biggest market value, we had the cnet yesterday talking about people should not be worried about the state of italian banks, the industry's overall situation has improved, nonperforming loans, this and that. bere are reasons to optimistic that the worst is over for the italian banking industry, according to him. francine: julian, are you surprised that the risk-off trading was triggered -- i know it is not sudden, but it is

actually quite valid. julian: i am not totally surprised, because this week -- there has been a whole series of turkey,incidents, argentina, etc., and they have been building up, becoming more and more risk-aware, and so consequently, the reaction in italy is not hugely surprising as people reassess where they should be placing their money in the short term and consequently see quite a lot of short-term moves into bunds and treasuries. francine: all right, julian, thank you so much, we will be back with julian chillingworth. and dan liefgreen, bloomberg market euros chief. not only is our treasury moving on the back of it, but we see a stronger yen being the topic for the seventh straight session. this is bloomberg. ♪ this is bloomberg. ♪

francine: this is the governor alia talking it about italian banks, talking about the market movements. he has not fully addressed exactly what is happening with the banks yet, and why they happen halted to the downside. too, althoughhi, they have now reopened. the concern is of course what has happened in italy, the turmoil. that will reverberate through the markets. it is very clear with the individual situation. this is not only moving u.s. treasuries but also moving the yen. ands get with paul dobson, julian channel worth is also

here -- julian chillingworth is also here. paul, they were seeing trading volumes. is this going to continue? full onday, it is panic, and it is clear that this is something people have not anticipated trip to exfo ago, everything was looking pretty complacent -- anticipated two weeks ago. everything was looking pretty complacent. however that is, it causes big pricing in haven assets as well as italian bonds. francine: i do not want to put you in hot water, but first of all, the italian constitution does not actually allowing referendum on any of the european treaties. so does this give the markets panicking any foundation? breeds panic.

we see how quickly that sort of things can change, and with the market scenario, it can become a reality. yes, it is clear there would be a long way to go before this was a genuine chance of italy leaving the euro, but at the same time, you do not want to be holding those bonds if it materializes. francine: julian, at the same time, we do not know if the populists, as you actually point out, actually run on an anti-euro campaign. julian: we don't, and for me, i will keep a closer eye on the euro than i will on the italian bond markets. i think the euro will give a much better signal as to whether markets generally believe this is a possibility that the italians believe. francine: paul, does the ecb need to step in? or even the central bank's action to come in and calm the markets. will they? paul: i do not think they will

do anything prematurely. it is not their job to talk about politics. you have got to be, you know, thinking about the rules that underpinned the currency in terms of debts and deficits, and the policy is decidedly against that, then the ecb is not a guarantee, right? francine: if you look at italian banks, saying if they did not have a panic, they would be much stronger than they were worth 2, 3 years ago. do you agree with that? apart from the fundamentals, they are ok. alian: the fundamentals are proven, but i would not go as far as to say they are ok. they are getting better. it would be great to outpace the reforms across the whole of europe, not just in italy. but yes, they are in a stronger position than they were pre-credit crisis, absolutely. as far as i am concerned, it is

too early to look at the italian banking sector. but there is a degree of improvement. but today is all about politics. very quicklyl, come at same downturn, is that what we can expect a day? paul: it is difficult to see where the brink is going to come from, and that is part of the problem. this is a debt market story or a credit story more than a stock story. it will carry on building, and that is the risk basically. how quickly will it end? european paul dobson, managing editor, and julian chillingworth of rough bump your, we focus on italy and .talian banks -- of rathbone up next, we focus on italy and italian banks. ♪ on italy and italian banks. ♪

francine: the italian two-year high as the country

prepares for populist elections. u.s. oil heads for its longest losing streak since february. and washington is said to be open to a settlement over illegal e.u. state subsidies paid to airbus. good morning. this is "bloomberg surveillance ." i am francine. scarlet fu is in for tom. there's a lot going on when it comes to italy. scarlet: you are right. the 10 year yield moving down approaching 2.8%. we are also bring attention to what you called early elections, although it seems like this will be three or four months of uncertainty before we actually get to the next italian election. --t happens in that period + period? we are also talking

about a possible constitutional crisis. looking at live pictures. for those of you on social media, we will push it out so you can follow it. italy's governor. a lot of italian banks halted on the downside. first, let's get to the bloomberg first word news. taylor: it is another sign that next month's summit between the u.s. and north korea is going forward. north korea's kim jong-un has sent his right-hand man to the u.s. for talks. kim yong chol will come the visitt ranked official to the u.s. since 2000. and populists in italy are moving for an early election. president sergio mattarella as the former imf executive carlo

cottarelli to put together an interim cabinet. the five-star movement called for a mass protest in rome later this week. the u.s. is willing to start talks to avert billions in sanctions on the e.u. the u.s. is ready to head to a penalties on avert airbus. itsb. holdings is adding to restaurant portfolio. the company is buying pret a manger. the terms of the deal were not disclosed, but the financial times reports the purchase price was $2 billion, including debt. global news 24 hours a day on air, and at tictoc on twitter,

powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor rigs. -- riggs. this is bloomberg. scarlet: get a check now. s&p futures indicating a lower open. u.s. stocks closing last week. stuck in this trading range. looking at a rally in treasuries. risk off. that is the theme across global markets. prices up, yields down. that green -- the error shows the direction of the yield. 2s-10s spread -- i am clipping a close eye on i amnow in its fifth -- keeping a close eye on wti, now on its fifth day of losses. the inflation

generating oil prices. italy is causing the pattern across the board. this is the spread between the 10 year btd's and german boones -- bunds. we have not seen anything like it since 2014. it is full on panic. it will be hard to short-circuit now that it has started in earnest. that is according to a couple of traders we have been able to speak to. , where ourto rome bureau chief has been covering every development in this story. italy leaving the euro. how much do we know about these populist parties gaining ground? and we also do not know, if we go to early elections, whether any of their political platforms

will be on italy leaving the euro -- is that right? >> that is right. it is a very fluid situation. markets are concerned because in the short term, we have a temporary government, so the populists are not take power. the question is will some people be concerned that they were tricked, and does that mean they will vote even more for the populists in the next elections? we are not sure. we think the next election will be about europe, euro, not euro. elections, that was not the issue. and we do not know how the alliances will pan out. we are not sure if the league will alliance with five-star, which case it could take the country. or the league could try to be head of the center right and win.

it is all very fluid. clearly, markets are nervous. markets do not know where they are going. populists are not -- you ine: let me bring what we heard from the president co backward italian -- of ban d'italia. short-term-ism, making the point that italy is always steps or from losing trust. is there a concern that the president may be impeached? i do not think he can actually be impeached. i think they do not really have an argument for that. he is within his rice says that he did not want the finance minister. the populist choice for prime minister, who was an inexperienced person with

no political experience. the point is we are already in tauro campaign -- electoral campaign mode. the fact that the say they want to impeach the president is unheard of. populists called for a major demonstration on june 2. comes in.ere visco he is telling everyone to watch what they say and what they did. scarlet: forgive me for asking the obvious questions here -- the president did ask carlo cottarelli to try to form a government instead, before we get to a new round of elections. is he in a position to do much? od, tohe do harm, do go the political situation? alessandra: cottarelli is doing his best, putting together a team. it will be interesting to see who is ministers are, because they could be figures that

reassure the market. present his assistant ministers. likely mozzarella -- mattarella will accept. but he remains in power until elections. it takes a minimum of 60 days for elections to be set up here that leaves about three months. i do nothing cottarelli will do anything harmful. what is making markets nervous is the uncertainty about the elections. three months is enough for a bumpy ride. francine: and if you are a technocratic government, you never really have much sway. thank you. cohead of fx the

and rates strategy at ubs. let me bring it to the board. 40, 1.4%. what are the markets really spooked about? and i want to go through the trials and tribulations and what you can vote on. first, the markets going too far? >> first, the market started from a point that there was a lot of optimism in the price, which we actually said at the time. second, the turn of events has been towards escalation, and we are still seeing that. there, there is now this trigger for -- this is putting short-term pressure on the market. it is worthis, keeping in mind up a spreads now

are not trivial. we did an exercise adjusting the spread to the cycle, and we will not -- we are now going to levels consistent with an escalation in risk premiums. the second thing is we can not have ever-increasing escalation without a reaction in the political scene. so it is important to keep a level of calm this year before full-blown panic. show ae: i also want to chart -- this is a mixture -- italian banks down. this is a measure in that they hold a lot of btd's. that theems to me market is jumping the gun. first, you can also have a referendum on euro. you would have to change the constitution first. what are people actually worried about?

>> i think the concern is political risk is back. and we are going to get visibility in that -- we are not going to get visibility in the that anytime soon. his ability to do anything meaningful that can reassure the name. is simply his that will take three months of the least. the big issue for me, when we -- if we want to go for the worst-case scenario, is will the runue and the five-star jointly in the next election? bring in a they will hormone mean -- they will bring an overwhelming majority that would be able to change the

constitution. that will be the main trigger. will they go together? do, they will have 90% of the first posted seats and come with a large majority. i want to go back to what francine was asking -- are investors overreacting? usn francine showed the italian banks and how they are tumbling, what do we know about everyone else who own a lot of btd's? because they might be in a position where they start to panic or start to unwind trades they were not planning to. typically, the sponsors include locals like banks and real money funds who have less of an immediate systemic pressure to unwind, unless they come under significant mark to

markets. what i would say for the banks in particular is as the market tends to extrapolate risk, a lot of the discussions between the different parties involved the role of banks. is this -- risk here one of the main underpinnings of how well btd's and banks have thatso far is that sense the cycle is bringing down unemployment, bringing down npl's. the question is whether this market pressure would sustain itself long enough to hurt the economic cycle. that is what the market is trying to figure out. have a long period of time of uncertainty. there are a lot of different

outcomes. the question is what are the pursuits of the different parties and how will they want to govern in the day after? ares not forget that there policy outcomes that can come out of this -- positive outcomes that can come out of this. francine: thank you. thoughts, we get the of yanis varoufakis, the former finance minister from greece. piece sayingpinion that sergio mattarella's move win to the populists. we will discuss that in 20 minutes. this is bloomberg. ♪ bloomberg. ♪

taylor: this is "bloomberg

surveillance." let's get the bloomberg business flash. nissan will cut vehicle production in north america because of a sales slowdown. the automaker will reduce workers hours and slash output at five plants by as much as 20%. wanted to grow profits rather than let sales grow. --ording to sky news, the 70% of. still owns about rbs. the government acquire these stake when it bailed out the banks during the financial crisis. that is your bloomberg business flash. francine: thank you. staying with the italian story. we see the spread widening between btd's and german bunds.

what are the chances, at this point -- i do not know if it is completely impossible that cottarelli has enough support to stay in power, but what happens after? are we starting campaign mode now? alignleague and five star contract,the famous that the league and five-star together, was a manifesto at the end of the day. we are already in campaign -- we have never left it. it will be a campaign with a more eurosceptic tone of the previous one. i do not think they will pledge a euro exit. i do not think it is a vote winning card. they will keep an ambiguous stance on that, like they did at the other time. but it will be a very polarizing campaign.

european fiscal cottarellitarget to being a target himself. meanwhile, the mainstream, from leadership, are still at a loss. scarlet: we need to also bring in the fact that, in spain, things are not smooth sailing either. motionnfidence introduced against rajoy. to what extent does political turmoil in italy affect what is happening in spain or spill over to how people feel in spain? or are they distinct stories? >> they are distinct. in spain, there is no political risk. rajoy will survive the vote. the political backdrop is still constructive.

two thirds of parliament is controlled by centrist parties. the euro is not an issue. the euro is catalonian migration. even in the worst place -- worst case scenario, where we have any party coming into power, they will be pro-mainstream forces there. so no major risk. scarlet: are things likely to get better before they get worse in spain? wolfango: i think yeah. in officef rajoy coming to an end. quickly the is how exit will materialize. that will depend on whether opposition parties can agree. most likely, they will disagree, which is why he would survive a no-confidence vote. but there is always the chance to bring another vote at any time. meanwhile, if you look at the they arearties,

struggling. that is why i am saying that potentially an early election in .pain could be an upside story the political see situation worsen in italy and as things move to an end game in spain, compare and contrast what we are seeing here versus their troubles we saw in the eurozone in 2011, 2012, when greece was teetering. themos: there are two significant differences. we are in a different part of the cycle. back then, we were entering a deep recession. right now, even with the moderation of pmi's, things are improving. that creates a different dialogue. the second thing to keep in mind

is the institutional set up across europe is extremely different. budgets have actually been repaired to a significant degree. and you have a backstop, and a set of backstops, and a set of institutions that are designed to help countries coming under pressure. it has to close below first to go down that route, but this is not similar. francine: do we have better mechanisms in place, the vicious circle between government and lender debt markets? repeat.can we stop it sooner now ? themos: we have mechanisms. back then, we did not have mechanisms. there is a difference between and ultimate resolution in terms of default and how you distribute losses, and there is a different case about mark to market risks. mark to market risks need a

trigger to stabilize the underlying courses. whether we get something in the italian seen that stabilizes mark to market risks is a different question. wolfango: i agree on that. but the political backdrop is worse. board the political majority that would potentially be required to get something done in germany, france, italy, and so on with be much more difficult to get. still have visco speaking, but given the financial markets and the turmoil we have seen today, should the ecb step up with a statement, or is it too politically risky? it is difficult to intervene in those subjects. in the past, they have kept a big difference from politics.

what i can think about is how financial conditions signal timing andary policy form their views around that. this requires a big shock, which is part of their inputs. scarlet: let me ask -- you mentioned pmi's indicate we are in a different stage, that things are better, the economic backdrop certainly different from 2011. qualify what better fiscal room means for italy, spain. 2011, we were at the tail end of a huge recession that created huge budget gaps across europe. so there will be a lot of fiscal tightening since then. in european budgets have been fixed to a significant degree. the second thing is to understand that italy, as it ,tands today, it has growth

which is important and meaningful in terms of lowering gdp trajectory, and growth persists. whatever comes next has a little up theroom to loosen budget constraint. that could be up to one percentage point of gdp, if growth outcomes are slightly better as well. obviously, the point where things start to go offhand is a combination of the two parties we have been discussing, creating something like a 6% budget expansion, which is a lot bigger than the fiscal space. wolfango, you wanted to jump in as well? wolfango: well, i agree on that. also, the vast majority of

-- the italians managed to spend the maturities of the debt. there is still room here to try to contain this. but the issues that about the political story. we will not not see more clarity anytime soon. francine: wolfango piccoli of intelligence, thank you. coming up next, yanis varoufakis , the former finance minister of greece. not everyone agrees with what he says. he wrote an opinion piece on italy today. this is bloomberg. ♪ ♪

francine: this is "bloomberg surveillance." what a treat -- with scarlet fu in new york, i am francine lacqua.

tom keene has the day off. ivanka trumpd 13 trade mark states before donald trump said he would allow cte to stay in business in the u.s. logon for that full story on bloomberg.com. find out why scalable is joining the largest firms. and the story the last two hours all about the european tensions. we look at how italy and spain are in investor crosshairs. populistlk about the backlash in the nation. i have not seen markets like this in a long time. they are absolutely in a panic. scarlet: absolutely. you wonder to what extent. , a european central bank bunch of speakers scheduled not

just today but later this week. it,they will dance around perhaps, because you cannot ignore it, given the reaction today. francine: a lot of people in europe saying this may delay normalization. staying with italy, this is one of our morning must-read's. you can agree or disagree with it. this comes from yanis varoufakis, a very divisive figure, writing." in "the guardian the president -- mattarella -- is forced to call for selections that, courtesy of his moral drift and tactical blunder, will return an even stronger majority for italy's xena phobic political forces, possibly in alliance with the enfeebled forz a italia of silvio berlusconi.

varoufakis joins us by phone now. when you look at the italian crisis, does it bring back ugly memories with what happened with greece? or has it been such a long time since greece and the story has moved on? moved the story has not on. the reality on the ground throughout the eurozone is one of fragmentation and disintegration. what has happened is the visible signs of the crisis have fallen of of the radar screen venerable institutions like bloomberg. eased atrisis has not all. it is progressing at an alarming rate. francine: we also have wolfango piccoli here. do you believe this is anxiousness about immigration or zip the relationship with brussels? in the case of italy,

claimant,ation and an equality, so on. these were the key drivers in the last election. most likely they will be the key drivers in the next one. with a stronger antiestablishment feeling, given what has happened since the fourth of march. this is what people care about -- jobs and the issue of migration. -- we should not look at it the euro is not an issue in spain. migration was never an issue in greece. let's keep the focus here and tried to get a good understanding before making some provocative remarks across the board. francine: we heard from the bank of italy governor saying that italy is just a few steps away from the very serious risk of losing the irreplaceable asset of trust.

how much would that be damaging to italy and europe? he is quite right. trust has been shattered. political center of europe has completely subsided -- the political center of italy has completely subsided. italy is a country that should be doing well, despite its many faults and problems. it is a major exporter. the export more than the import paid and the government has, for years, enjoyed a budget surplus. a country like that should be doing well. years, wee last 20 have an italy that is absolutely stagnant. been falling -- for the first time, it has been falling below spain. the italian economy can not

sustain within a straitjacket of fiscal policy. the people of italy have voted socialismplementing for the very few. what do they get now -- they have an imf plant as prime minister who plans to do the same. so we have a crisis of democratic legitimacy. scarlet: i hear what you're saying, but the stagnation also coincided with an aging population in italy. it cannot be just due to brussels that italy is not doing as well as it should be on the face of it. yanis: imf rate you are wrong. it has nothing to do with brussels. it has to do with the monetary unit. when you bind monetary together, and economy like italy with an economy like germany and you fix

the exchange rate between them forever, and you have in italy capital concentration that is much lower than germany's. and you do not have the mechanism of a gradual slide in -- tochange rate for compensate for these differences, what you end up recession,ermanent permanent stagnation, in deficit countries like italy. after that, you have the political crisis that follows. allow me to say that italy has corrupt,en inefficient, problematic. but from the 1950's to the 1990's, italy was growing. and 1990's, italy, despite all the problems you said -- the demographics, corruption, italy was growing. it was not in the class of permanent stagnation. that was due to the terrible design of the eurozone. scarlet: so the only way out for italy is to leave the euro?

to turn no other way the economy around or get out of stagnation? let me use a metaphor. when you are a building on fire and there are no exits, there are two things to do pay the first thing to do, given there are no exits, is put the fire out. so my recommendation is the italian political system should go to brussels, particularly berlin, and join forces with emmanuel macron and all the rest of us in europe asking for important reforms to the way the eurozone is run. at the same time, have a plan whole -- holea need be.walls if i've never been a proponent of exit, but when you insist it should be business as usual, way

business as usual was not working -- wolfango let me bring back into the conversation. wolfango: i want to make the point i made before. if we go back through four weeks, there was no problem in ability, despite the economic fundamentals being what they are. the issue is we have five star and the league following basically your copybook. and they managed to kill the political capital, the credibility, that italy has built over time. don't you think that is the real issue? yanis: well, let the correct year -- they did not copy my copybook. am a passionate your pianist. i wanted to keep greece in the eurozone. the only thing i was showing for

was the debt restructuring, which was essential for greece to remain in the eurozone. theissue is the leaders of populist party saw forged an alliance after the march election, for them, their wet dream is to get out of the euro. agoto say that a few weeks there was no problem when the march election delivered a momentous blow to the political establishment, yielding an absolute majority in parliament for xenophobes and anti-european ists is an indication of how stagnant things have become, to the detriment of europe. aboutgo: we were talking -- francine: let me bring in

themos. themos: i will not refer to anything from mr. varoufakis' statement. but we have a country that has resorted to -- the economic results of that have been so catastrophic, it has led a number of different countries go back to unsuccessful pegs to create stability. a monetary reason union was because of the flight of capital and the erosion of base created in smaller economies. i would caution and highlight the need for moderation in what we are saying. francine: maybe a comment on the back of that? yanis: yes, of course. francine: do we need more

moderation? yanis: let me put it this way. it is quite true that devaluation and moving to your national currency is not going to solve everything. that is why i never wanted greece to come out of the euro. but to say that staying within , evenro must, at any cost at the cost of permanent stagnation, like that of italy, is unrealistic. italy has been suffering for the slideears with a massive in the eurozone. have you seen the flight of capital from private accounts, especially in northern italy, to frankfurt and luxembourg? italy as we are is not sustainable.

let's agree that there should we ital-exit.uld be no but the business in which mr. mattarella is asking the new designate to insist upon is unsustainable. scarlet: in your opinion piece, you are about mattarella's moral drift and tactical blunder. what were his other options? what else or should he -- could he or should he have done better? yanis: either allow this government to be formed and be exposed for its inaccuracies -- inadequacies in front of the italian public, hoping their support would wayne, or refuse to give them -- would wane, or if used to give them a mandate on the basis that the leader of

the league was putting forward a proposal for expelling 500,000 migrants by means that should not be continents by any civilized european country. what he has done is creating the an elections for that will look like a referendum on the future of the eurozone. he managed to frame this upcoming election in terms of the european union versus moxie, allowing the leader of the in terms of the european union versus democracy. thank you, yanis are about this. some agree with you, some do not. you, yanis varoufakis. somewhat agree with you, some do not. in the meantime, the bank of italy's governors saying a political crisis in italy could

send that yields soaring and that this could be an irrepressible asset of -- irreplaceable asset of trust. markets are tanking. this is bloomberg. ♪ oomberg. ♪

taylor: this is "bloomberg surveillance." the shares of some iphone display makers fell in asia. apple has decided to use next-generation screens for all of its new models next year. several analysts say such a transition is not likely. shares of japan display were down as much as 21%. isbrazil, petrobras suffering its worst the klein

in with two decades. a truckers strike is causing shares to fall by more than one third. and oil union is demanding the resignation of such a buzz' -- robras' ceo. dassault has died. expanded his aviation empire. francine: thank you. to expandussian plans oil output is driving prices. -- donald trump decided to reimpose sanctions on iran.

what level can oil finally -- actually find support? talk to us a little bit about at what point is too low for oil? is there such a thing as an optimal oil price? >> no is the short answer. of where the price settles, it is going to come down to what exactly does the reversal look like? the moment that they are over complying to the cost they agreed to, they could go further depending on what happens in nigeriaa, in iran, in or libya, so it really depends on how many barrels we see. this will be a slow story, though. it will take several months to figure out how bad the impact is

on iran or venezuela. francine: there is an opec meeting in june. a lot of smaller countries are mad it is basically always saudi arabia and russia. will it be tempestuous? stuart: i would have thought so. one thing to remember is opec to this amazing ability remain cordial with each other even at the worst of times. tohink all of them have come the recognition that there is something more important than national politics. so we will probably hear somewhat negative comments from the parties, but fundamentally, they are all in this together, and they realize that. scarlet: what is the read from the market as to whether russia and saudi arabia -- saudi arabia withmove through increasing output? stuart: it was a verbal

intervention, and it was uprising they turned it around that asked. if you we sick of, the saudi spoke about no need to increase production any time soon. and there was a lot of rhetoric coming from the u.s. in terms of trump's to be done oil and opec. will they actually do something, i think it is likely they will do something, even if it is only to take the market back to where they had pledged to bp at another words, bringing it back to 100% compliance instead of where we are now. scarlet: you talk about consent when it comes to reduce connection. what is in me now that russia is part of this group to increase production? is it harder to get consensus on that and? -- end? challenges. do face one is how many barrels will they have to compensate for?

once they have a number in mind, how do they deviate up between upm -- how do they divy it between them? in some -- divvy it up between them? wallace, thank you for joining us. still with us is terrorist you talk us -- themosith us is fiotakis. exasperate -- ex acerbate the situation in italy? themos: marginally in terms of how gross assets stray. i know this question

could be from westfield, but silvio berlusconi played a crucial role in allowing the previous coalition government to come together in that he step aside. does he still have a role to play as the move towards the next election? themos: you're hitting the nail on the head. i do not think it is a left-field question. the main question here is our -- what are the political interests of the two parties? is the league interested in a grand coalition with the , or are theyement more willing to occupy the center right together with whatever is left of berlusconi's party? he huge what makes t difference. market pressure is something that informs that debate. francine: you can see it very

clearly. traders are dumping risk. i want to bring in that fixed income moves. there is a lot more concern about a possible euro exit. that is quite impressive -- the italy two-year at 2.5. the u.s. two-year yield is at 2.42. the bottom line is it is all over the place, because people do not know how to price in possible risk coming in from italy. themos: that is one side. there are ways of rejecting. but it never plays out in the exact way your models say. that accounts for our approach as well. francine: what models do you use? -- we: we have six ugly have cyclically adjusted spreads. this kind of for move, they would have a slightly bigger move down in the hero. euro.the

case atdd in the treasuries is, to begin with, we are heading into this turmoil in oure fed fully priced models. accounting for the fact there is an uncertainty premium that clouds the path from one market two years out. from that level, from that perspective, the symmetry of risks was lower than 10 year in the u.s. that is one of the reasons why the euro is not going as low as our models adjusts. francine: is there a push back against ecb normalization? interview thet an ecb vice president gave, saying that italy might want to read the rules again carefully. themos: the only one who does not have uncertainty these days

is mr. varoufakis. nothing is certain in this set up. i think the ecb find it easier to respond when it is about items that pertain to their mandate. the most important the velvet links this mandate is how the tightening financial conditions via lower equity markets and wider credit spreads inform future growth outcome. we probably need a sustained period of tightening financial conditions for that to inform the growth projections of the ecb. but that is a main transmission channel. scarlet: as a look at yields on italian debt spike and italian stocks plummet -- pretty much in freefall come off by 2.8% -- where does this leave italian equities? our base case starting

into the year was italian stocks and, broadly, periphery stocks, government bonds and italian yields, have a strong tailwind from cyclical improvement. an improvement that has lied and is still -- has lagged and is still ahead of us. if political risk to -- were fade, it would favor political banks. the question boils down to what will the italian parties pursuit -- government? francine: thank you. this is bloomberg. ♪

blowout, at sign

populists prepare for early elections. bankers say there are no justifications for the market reaction. worldwideme markets are in turmoil as markets are concerned about italy exiting the euro. washington is said to be open to a settlement over illegal eu subsidies to paribas. good morning. the markets certainly on the move. so are we. francine lacqua in london. scarlet fu in new york. tom keene has the morning off. there is a lot when it comes to the markets. fixed income taking the brunt of the risk off mood. stephanie: you see the equity market responding in kind. the ftse is off 3.6% at the moment. if you look at the chart, it is a straight line down.

you wonder how much this spills over into the u.s. trading day. francine: futures are down. if you look at the repercussions on the u.s. two-year yield, it has repercussions there. let's get to bloomberg first word news. taylor: it is another sign that next month's summit between the u.s. and north korea is going forward. according to a person familiar with the matter, kim jong-un has sent his right-hand man to the u.s. for presummit talks. he will become the highest ranking official from north korea to visit the u.s. since 2000. in italy, populist leaders are getting ready for an early election. interime asked for an cabinet. a general election could be held as early as september. the antiestablishment five-star

movement called for mass protests in rome later this week. oldings is adding to their restaurant portfolio that includes -- panera bread. terms of the deal were not disclosed. the purchase price was $2 billion including debt. 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. scarlet: -- francine: thank you so much. markets are moving on the back of almost everything. the yield on the 2-year note for italy is higher on the day. the 10-year yield is also higher. this is no longer a local issue. if you look at the 10-year treasury in the u.s., it is down. .ermany's 10-year down

it is very clear yen strengthening. the euro is down. scarlet: the dollar is firmer against most of the g10 currencies except for the yen. s&p futures indicating lower open, off 0.8%. we talk about the flight for safety. the money is moving into safe havens like u.s. treasuries. 2.86, afteryield is peaking at 3.1 a week and a half ago. lowest inading at the about six weeks. francine: this is the chart that matters for me, the u.s. two-year spread over italy. if you look at the risk

disappearing in the u.s., this is what we're looking at. it is amazing looking at the spread between italian and u.s. yields on the shorter term. suddenly, italy, that yield for .he two-year thank you for a wonderful chart. scarlet: that is remarkable. it looks like it is drawn in with that spike in the italian two-year yield. there are certainly technical levels people are looking at after saudi arabia and russia indicated they would team up to increase production. wti is at an inflection point. the latest downturn recruit has it resting at a trend line for the 50 day moving average. hit a three-year high. goldman sachs maintaining their bullish view, saying output

increase from russia and saudi arabia would only offset involuntary production declines, and demand globally is still strong. rome.ne: let's go to thank you for joining us. the markets are falling out of bed. they only see risk out there. they are pricing in a possible italian exit. what do you know about the polls? about thee know next possible election and how the five-star movement and lega would perform? >> we don't know very much. it should be good news for the market in my view. refusing to agree on the appointment of the finance minister and a possible future government stopped something

that was going to move toward italexit or something like that. this is now becoming less probable at the moment. francine: the concern is because the president stopping the populists from forming the government they want, this will create a backlash from giving the populists much more support from tying citizens. is that erroneous? >> i would not say that sergio martelli is a renzi man. he is applying the italian constitution. i don't think that is a correct reading. it is true that something is going to happen in the political

scenario in the future. that it will get a confidence vote is not very high. we will go towards new elections after the summer. or in january or february. that is the scenario we are looking at. i would not say we know what is going on. knowe moment, we don't which party would be a lie with each othered with one. we don't know that the five-star movement and the league will be allied. scarlet: if we get an election in september or january, there is still months before anything happens. what does the economy look like in that period? do conditions worsen because

hasian debt yield skyrocketed, and equities are falling? is there a chance for things to stabilize? >> the basics are not that bad. picture presented this morning is not all that negative. the political situation can bring uncertainty to matters. i think we will have a new government. i am not completely sure that this new government would not be able to approve a new budget by the end of the year. francine: thank you so much. jeffreyus now on set is rosenberg, chief fixed income strategist at blackrock. fixed income is all over the place. what is freaking out the market? jeffrey: it is everything you

are talking about. the italian election, the chart of the two-year spread is quite remarkable. upward, that is for a very long time telling you that the italian market was pricing raterozone and ecb policy fundamentals and not pricing .n political risk premium that had been pushed down through financial policies, the bully in the ecb to contain some of those concerns. that requires a political agreement. has this election, that undermined the belief from financial markets, and over the weekend, that is showing up. the gap up for this morning is

about rising in the italian risk premium for the political uncertainties. we saw at the italian politics very closely. the happened with constitutional crisis and italy possibly stepping out, that is a far way off. and what do they gain some calm? is it just a movie in the markets? jeffrey: i don't think it is just a mood in the markets. it is a realization and change to the facts that you now potentially have a referendum. this election as a referendum raises the stakes on a potential downside scenario. the market is changing the distribution of outcomes. one of those outcomes have been very small, the outcome of

renegotiation. let's not say exit. there are a lot of interim steps that one could take the fall short of a full on exit. i don't think we have the fancy quip yet, italexit. i don't know where we will go with that. because of the political changes, that cannot be viewed as such an unlikely outcome. when you think about what that means for the valuation of debt, that could mean a very significant disruption in the value of debt. going away because the uncertainty of the elections is not going away anytime soon. none of this has a very quick on the egg.-- unscramble we have to move forward through a couple of different scenarios, easing the political uncertainty and coming back to the center,

and when faced with the risk of a more disruptive choice of exiting, the population will pull back and vote for more central parties, or the alternative of blocking the populists gives them more support, but from the market point of view raises the odds of them using that support to put about a more aggressive solution , therefore the valuation of debt may have greater downsides. scarlet: jeff rosenberg of blackrock is staying with us. selig, formerfan undersecretary of commerce for international trade. a.m. in new york when stephan selig will be joining us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." averaging will return up to $2.2 billion to shareholders. they are completing the sale of their insurance group to phoenix group. co-ceorg spoke with martin gilbert. >> we still need to talk to the regulator about making that happen, but we are pretty happy we can return this level to shareholders. taylor: that is your bloomberg business flash. scarlet: thank you so much. his rightn has sent

hand man to the u.s. for talks, yet another sign that the once canceled summit scheduled for june 12 made be going forward. joining us now is kevin cirilli. the north koreans have empowered someone to discuss the summit with the americans. the u.s. has sent a delegation to asia. personnel is policy. that is critical. what do we know about the folks the u.s. has delegated to speak on its behalf? one is a former u.s. ambassador to south korea. and in addition to that there is a bipartisan group of lawmakers set to meet in singapore this week and president trump's advance team over there in singapore laying the groundwork. all signs point to all systems are go for this meeting on june

12 in singapore. it could come down to a last-minute thing as we saw last week where the back-and-forth really developed in real-time with these back-and-forth negotiations. francine: good morning to you. even if they meet for june 12, what will each side ask of the other one, and how do we measure success? kevin: success in the long term is whether or not north korea denuclearize is. how they want to do that is they want to lure in investment. they don't even really have an economy. in order to get an economy and give up nuclear weapons programs, they need to get investment, and the top targets of that are the u.s. and china. what economy north korea has is directly linked to the chinese. 90% of imports or exports are linked to china.

democrats and republicans agree that if kim jong-un is not willing to play ball in terms of denuclearization, the u.s. can just walk oil. president trump on saturday night made comments to reporters, he said he was frustrated with president xi with china poking the u.s. in regards to this summit meeting. that is where the u.s. trade policy gets interesting ahead of this summer. scarlet: thank you so much for joining us. still with us is jeff rosenberg of blackrock. when you look at how markets have reacted or not reacted to north korea, it is as if there is an initial knee-jerk reaction, and then the effect fades. given what we are seeing in italy, are we going to see a fade throughout the day because investors have remarkable ability to shake off a lot of these concerns?

jeff: the range of outcomes around north korea is hard to place. what we were talking about with regards to italy is really repricing in political risk that is long been dorman but certainly familiar with regard to past crises. you are stirring up a lot of concerns that are fundamental. there are issues in the eurozone, issues with the italian debt situation that are left unaddressed. the political risk brings those back to the table. that is why you are seeing that. francine: thank you so much. jeff rosenberg of blackrock staying with us. coming up in the next hour, unicredite mustier of joins us at 7:00 in new york. this is bloomberg. ♪

scarlet: i am scarlet who with francine lacqua. across bearishness global oil markets. longesthe losing streak since february. ianning us is jul

lee. even with this change from saudi arabia and russia to start boosting supplies later this year, have goldman sachs maintaining their bullish view. the demand picture is still very robust is that out of consensus? at then't think it is moment, nobody really knows what size this output increase is going to be. total sees it as being a abandoning of the output deal. we are already losing half a million barrels a day venezuelan output. more expected. the sanctions on iran could take another half a million by the end of this year. that is one million barrels a day less production than the world was expecting. we still have white request oil demand growth -- quite robust

oil demand growth. there is a strong argument that this is just taking back or replacing some of the oil that is lost. francine: should we be targeting a price? is there an optimal rise that russia,ale producers, and opec happy? >> the one-word answer is no. everybody has an optimal price in their head. it is different for everybody. for opec, that is almost always five dollars a barrel higher than what it is. true even back when oil was over 100. there is always a big range it is quite clear that for

consumers like the u.s. and india and other developing markets that $80 a barrel was causing certain significant concern. citigroupoming up, global head of commodities research will be joining us at 8:30 a.m. in new york. from new york, this is bloomberg. ♪

francine: this is "bloomberg surveillance." scarlet and francine from london and new york. tom keene has the morning off. the is filtering through

political turmoil in italy. that is now engulfing all markets, triggering risk off moves and flight to safety worldwide. gold and the yen gaining. italian bonds plunging. the euro retreating. this is looking at equities across europe. ftse down 2.8%. the ibex down. day will bew of the an exclusive conversation with jean-pierre mustier with unicredit. we will talk about what markets are doing and whether it is justified. we will talk about how banks will be affected by the selloff. that will be coming up in about half an hour. scarlet: let's get to jeff

rosenberg of blackrock. you had said earlier it was not clear what people would call a potential tying exit. michael mckee just chimed in that the overwhelming twitter vote was for quitaly. when you look at the flight to safety, how much of this is going to remain the focus by the end of the week? we have a lot of data coming up including gdp and the jobs report on friday. jeff: it is a good point that markets can point to one thing at one time, and today is obviously italy, but that is not going away. we are repricing political risk. there will be a semipermanent fixture. this will not be retraced immediately. today is clearly classic risk off. other things are going on.

it will be interested to see how the u.s. trades during the day because the fundamentals have been very distinct, and the italian issues are distinct as well. there is clearly a crossover terms of risk off, but we are talking gdp, payrolls, inflation, the fed. the flight to quality seems to price back a little bit of the central bank expectations. scarlet: speaking of central bank expectations, ecb officials are due to speak today. will they address what is happening in italy? it would be hard for mario draghi to avoid making that connection. jeff: the classical form elation for the ecb is does this race to the level where it impairs monetary policy transmission? that is what people are looking for. there will be focus on that.

to the degree that there is a transmission effect justifying greater intervention, you may go back to that formulation. the fundamentals of the eurozone had been where we were talking about exits from policy accommodation. scarlet: normalization. jeff: normalization of the to the sheet lagged ..s., but certainly a pullback that was a huge support in terms of the periphery, eurozone bond market performance. having political uncertainty at the same time the ecb was seeing those fundamentals is pressing on market expectations about how quickly they will be able to do that. that will be the focus of markets on those comments later this week. francine: the european central gave an interview where he was asked about italy. this is the quote of the day, italy knows the rules.

they might want to read them again carefully. are we going to see more warnings like this from the european central bank? does that delay the normalization process that was set to begin? this year? jeff: i think the tone will depend on how much spillover there is between the italian risk to the rest of europe on monetary policy. if he gets too aggressive in terms of destabilizing that, you may see different comments to calm things down a bit. francine: thank you so much. jeff rosenberg of blackrock stays with us. let's get to bloomberg first word news. taylor: japan's prime minister shinzo abe says he will meet with president trump before the planned u.s.-north korea summit next month. japan is concerned that they will reach a disarmament

deal that does not address japan's concerns about ballistic missiles. the president has tweeted that the u.s. has put together a great team for the north korean talks. billions of sanctions being imposed on the eu according to a person with the matter, the u.s. is ready to negotiate a settlement over illegal state subsidies to airbus. we are watching developments in belgium. killedd man has shot and two police officers during a hostage situation. reports say a passerby was also killed and that the attacker was killed by police. it is not clear yet what led to the hostagetaking. billionaire investor george soros sees another global financial crisis brewing. in paris, he pointed to capital

flight from emerging markets and said the european union aces in the threat to its existence. becauseon for that is the destruction of the alliance between the eu and u.s. 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. scarlet: thank you so much. time is running out for countries that want to avoid new tariffs on aluminum and steel imports. donald trump gave some reprieve, but that ends on friday. joining me now is stefan selig, former undersecretary of commerce for international trade at the u.s. department of commerce. jeff rosenberg of blackrock is still with us. in terms of this deadline that has been put in place in their

exemptions for canada, mexico, the eu. is the president going to hold to this june 1 deadline? stefan: i think he is. i think this is the first of a number of measures the administration is considering. that thesection 232 president look to for these tariffs, he is looking to for automobile tariffs, which is for national security, giving him wide latitude to impose tax. it has not been used historically by any administration. scarlet: many will claim that the national security argument does not hold water. does that matter in this situation? argumentsme of these as for automobiles are somewhat ous.i

more than half of the automobiles purchased in the u.s. are built in japan, europe, canada, and mexico. those are our top allies. the idea that we need to protect ourselves from those countries is far-fetched. the problem is that any country can claim anything for national security. the way trade needs the work is for a long-term relationship as opposed to being highly transactional and cutting at the rules that keep countries from being able to follow long-term plans gets at the heart of creating long-term problems. francine: if there was a full on trade war, or if these trade tensions ratchet up to the point that china and the u.s. are uncomfortable, who loses the most? stefan: i think everybody loses

in a trade war. there is this notion, mistaken i think, that since we sell more goods to china, we have a better position. they are selling us more stuff. that is a flawed argument for a number of reasons. culturally, they are probably more able to take on pain then we are in the u.s. because of trade war. more importantly, president xi is apparently president for life. as a result of that, he can play a much tougher hand. francine: that is what i wanted to ask you. is this a longer-term plan from the trump administration to get something concrete out of china, or do they want a win to help with the midterm elections? stefan: so far, the president as a tactic has been told and

walkssive and seems to them back in the context. we will see how it plays out. scarlet: is there any way for investors to position themselves for play the treat tension between china and the u.s. -- t tension between china and the u.s.? how do you invest with this in mind? jeff: very hard to position for this because of how hard the back and forth goes. engineering some kind of inflation and the context of a lot of other things that lead to inflation, there was also some regional stuff as well. the focus is on china, but the other play with investor significance is nafta. if i can just ask stefan's views on nafta.

what is the latest on nafta? stefan: it seems like it is taking much longer and more difficult than the present and his team -- president and his team had expected. i think the issues with nafta should have been easily solvable. mexico and canada are two of our closest allies. they were signatories of tpp before we withdrew. lot of the modernizing aspects of nafta, which have been able to get to. the administration took very aggressive positions around automobile content and around this sunset clause from which are going to be very difficult for canada and mexico to agree to because fundamentally they make no sense. as a result, we have seen far less progress. jeff: time for a follow-up

quickly. scarlet: are you producing the show? go ahead. jeff: a lot of people are worrying that if there is no agreement, then there is a much more aggressive about them. stefan: the question is do we kicked the ball down the road for some period of time? that is more likely than not. it is unlikely the u.s. withdraws from nafta. unfortunately, we don't take advantage of actually getting a modernized nafta for an agreement that is 25 years old. scarlet: there is a lot more to be set on nafta and trade. seligosenberg and stefan are staying with us. you want to tune into bob moon and karen moskow on bloomberg radio. lots to discuss this tuesday morning. from new york and london, this is bloomberg. ♪ is bloomberg. ♪

taylor: this is "bloomberg surveillance." let's get here bloomberg business flash. the shares of some iphone display makers well in asia today. apple has decided to use next-generation screens for all of his new models next year. analysts say such a transition is not likely. japan display were down as much as 21%. in brazil, state one oil company petrobras suffering its worst decline in two decades. a truckers strike is wreaking havoc, causing shares to fall by more than one third. france's president emmanuel macron says the country has lost dedicatedo

his life to building french industry. he inherited the aviation fire from his father and expanded the business. scarlet: thank you so much. canada and mexico have so far managed to avoid u.s. tariffs on aluminum and steel. that deadline on june 1 is looming. seligwith us is stefan who is the former undersecretary of commerce for international trade and jeff rosenberg of blackrock. you have been in rooms before where you have tried to hammer out a trade deal. trade deals are not transactional. you cannot look at it like a real estate deal. you have to have a longer-term timeline in mind.

you have it expire after five years when it takes one year to hammer out? jeff: i don't know how you have -- stefan: i don't know how you .ave a sunset clause these are rules for the road. the future is uncertain, five years in this case. companies will be highly reluctant to make investments. that is going to suppress trade and suppress investment. i think this is just trying to get u.s. companies to stop offshore and and invest in the u.s. because if they have this sunset provision, u.s. companies will be highly reluctant to invest in mexico and canada. the problem with that being, that will make u.s. companies not globally have the with the

rest of the world -- competitive with the rest of the world and raise prices on u.s. consumers. scarlet: short-term gain for long-term losses. what does that mean for foreign companies that have operations in the u.s.?? are they less likely to invest? stefan: possibly. that in annot do globally competitive fashion, they will not do that and abandon these markets and sell their goods elsewhere around the world where they are able to do so without investment restrictions. scarlet: we had talked about how u.s. and chinese trade talks had five principles going in. talks canada and nafta differentiate themselves by having clear points that cannot be undermined by their colleagues?

stefan: it seems like the u.s. trade representative is sadly taking the focus -- scarlet: why is that sadly? stefan: he doesn't seem to have the moderating influence of others. he is a former trade lawyer. he is not a deal guy. he has impassioned views standing in the way of getting a deal done. jeff: you asked earlier how do investors play nafta uncertainty. sets, theebt as uncertainty, and the question earlier of the cloud hanging over that uncertainty is there

is a more disruptive outcome that stefan dismissed a minute ago, that there is unilateral withdrawal. that does much more to impact the mexican economy. stefan: i think uncertainty for sure will be present. that will impact volatility. i don't think there will be an absolute withdrawal. francine: thank you for joining us today. jeff rosenberg a blackrock and -- advisors.of coming up, talking about market volatility and italian politics. scarlet and i will be back shortly for all of your market news. this is bloomberg. ♪ this is bloomberg. ♪

francine: good morning. this is "bloomberg surveillance." italian stocks for banks are falling following political uncertainty in the country leading european stocks lower. shaking investor confidence.

talking possible italian exit, we are pleased to welcome an exclusive conversation with jean-pierre mustier, chief executive of unicredit, one of the largest banks in italy. thank you for making the time to speak with us and markets and investors. what is your view on the italian situation? markets are falling out of bed. is the selloff justified? jean-pierre: good afternoon. i think the selloff is not justified. the fundamentals of italy are very good. the economy is growing at a good pace. andumers are positive, corporate's are positive as well. uncertainty. i think the fear of italy leaving the euro or the eurozone is overdone.

to the what has led selloff, but we should go back to reality. italy will not leave the eurozone. we need to look at the good fundamentals of the economy. much is your exposure to italian sovereign debt, and are you changing any of that exposure? jean-pierre: exposure to italian sovereign debt is around 42 billion euros, which is less than our total capital. it is an exposure that has less than a three-year duration. we are very comfortable with it. is there anything politicians can do, anything bankers can do to appease the markets right now? jean-pierre: i think it is important that we pass a proper message to the market that the current situation in italy is actually stable. the economy is growing very well.

client i see,e every corporate client tells me they have got better quarters in the past 11 years. obtained inas been italy, and the situation is very good. companies are exporting at a rate that is higher than other countries. they are gaining market share. in italy, retail clients are consuming as well. there is no reason to be worried looking at the fundamentals. francine: when you look at the selloff, is it impacting unicredit's activity, impacting deposits, corporate deposits? jean-pierre: absolutely not. i was visiting clients yesterday in parma. the clients are very confident. i think we have a disconnect between the financial markets

and the situation locally. important that we understand that more than 65% of italian debt is owned by italian nationals. would you consider italy leaving and 65% of italian nationals, it is impossible. let's be rational. situation in ahe very sensible way. francine: are you putting in place any specific emergency plans in case the situation deteriorates? should banks in general have contingency plans? havepierre: we always contingency plans for many topics, but we have no emergency or contingency plan for the current situation. we have liquidity and a high level of liquidity like every other italian bank.

the liquidity situation of italian banks is extremely strong. regulatory meeting is 100%. the time banks have strengthened their balance sheet. nonperformingur exposure in a dramatic way. the situation for italian banks has nothing to do with 2011. the italian banks are much stronger and have a strong liquidity situation. this is why it is important to go back to fundamentals and look fearrtainties and not driving the market. we are very calm. francine: how is the widening spread hitting your ability to dispose of that loans if at all

loans if at all? we have seen a good improvement of the credit evolution of the italian companies. the bad loan market has been much more liquid. open the market with the last transaction we closed in january where we sold 17 billion of nonperforming exposure. --will reduce to zero hour our non core bank. that will bring it to the equivalent of the average of european banks. it is finding a solution in order to converge toward the european average. francine: i think you talked about the equity capital ratio. is the widening spread impacting that at all, or can it in the

future? thatpierre: it will impact eventually. i think we see a large number of buyers willing to buy nonperforming loans in italy. it is performing well. there is no reason why nonperforming exposure should go up from there. did you had your portfolio head of the elections? taylor: we do not hedge it -- it has been reduced to a year and a half to three inrs to give us flexibility terms of being able to buy more debt