francine: trying again. italy's government -- appointment as prime minister. don't listen to soros. morgan stanley chief executive backs away warnings of a financial crisis as global stocks bounce back. facingn't think we are an existential threat at all. francine: deadline day. brexit braces for a trait offensive from president trump. tariffs are due to come into effect midnight washington time. ♪ francine: welcome to "bloomberg

surveillance." i am francine lacqua here in london. these are your markets. the stoxx 600 gaining a touch after we had that massive rally on tuesday. there was a trend reversal. i guess the next investment trigger point that could happen for markets is not only the , but what isuation happening with inflation in the u.s. yieldar growth -- gross at 1.02. because i was mentioning the inflation data out of the u.s., we also have a jobs report. it is the tenure treasury yields just 10 year treasury real cash 10 year -- 10 year treasury yields we have to watch. coming up, a former u.k. trade minister and the chair of the benn,g of the eu hilary

joins us. we are joined by the canadian , francois fillon sean parnell just as often the champagne. let's get first to the uber first word news. here is kailey leinz. >> italy's president is ready to appoint a new prime minister. said that daysl after the antiestablishment five-star movement walked away from trying to form a coalition government, he wants to find out whether they are ready to provide this. the former imf executive is being forced to wait. in spain, they are lining up the roy tomorrow. bloomberg has learned that the

nationalist are planning to take their lead from the catalans when they make the final decision. a socialist party press officer declined to comment. european union is bracing for its decimated report that the tariffs a way to impose on steel and aluminum. granted reprieve to the eu, canada and mexico until june 1. at meetings in paris, eu leaders are making a last-ditch attempt to ask wilbur ross for relief duties. -- with america. optimist justvery very optimist -- very optimistic. i do my best with what i can do.

>> the fed board has taken the most concrete step yet toward rolling back the volcker rule. 3-0 26 itvoted changes kicking off an administrative process. philip long said the rule is unnecessarily complex and impossible to adhere to. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg. we are getting some breaking news out of the bank of japan saying that it plans to keep the current base of on buying in june. that is the very latest from the boj. i want to show you what we have seen over the last week. so it was seeing pretty strong moves when we headed the market route on tuesday.

let's look at dollar yen. if you look at euro-yen which is what the pros look at. we'll get to that chart very shortly. italy's president is getting populist leaders another shot at forming a government according to a senior state division -- senior state official. the league and five-star movement try to revive their coalition. both parties are pushing to dictate their own terms. in the latest twist, five-star said they're willing to propose a different finance minister after initial suggestions were vetoed by the president while the league leader will not budge on the cabinet lineup. can they find a resolution? now is nicola borri. , professor, much for joining us. it is impossible to figure out what happens next.

are we going to have a populist government? will the president act down? ministervona becomes for the foreign affairs, or are we going to elections? nicola: i think will have a populist government. we will have a league-five-star government. the solution will be publicized savona --k problem rob lowe savona. francine: what does that mean about how long the government can last. we saw in the last 72 hours, huge differences. nicola: the big issue here is the league is getting popular vote.

try --ession is he will againste tried to clash president sergio mozzarella and i think he will try again once the -- maybe he will clash against the president and possibly with veto some of the -- or probably he will try to clash against the european party and european commission. his goal is going to elections soon and trying to take advantage of the momentum in for him thing a populist, clashing with established institutions is only a source of additional popularity. francine: this is what i'm failing to understand. it seemed that both parties thought they would gain more voters by going to the poll. why form a government?

is true for the league but not for the five-star five-star is losing according to the poll. ofors that the leadership demaio is questioned within the five-star. white league all the incentives to go to election is this is not the case for five-star. five-star now putting on the table this possibility of anyway doing a government just like replacing the finance minister savona and putting in a different position. it will be hard for salvini to say no to this proposition. even though he has the sentiment to go to election. i don't think for him it makes much difference to go for election in july, as opposed to in the fall. we will see a government but my impression is this government under the impression pressure --

under the pressure of lego will try to clash against institution. it is difficult to say on what matters but he will try. they will try to pass laws that base.t backed by tax the president -- the president will try to be to this law. francine: what does this mean for the economy? do they go after the budget laws? there is concerns about increases. is that were the fault lines lie? exactly. there is increases that would sugar the beginning of the next year. this is something the government will try to do. this leagueent of

and five-star has promised to do a lot of things without raising taxes and with the cutting expenditures. this would be the source of the conflict with the situation, with our president and european partners. my impression is this government will try to find any possibility to find to clash against the situation because it is a populist government. the choice within the last few ministerabonis finance , i think that salvini lee that he would find opposition of the president. he sort of used this person to clash against the president in order to gain additional popularity. it seems to me especially

salvini, the lead in this alliance, is -- has been objective. it is something to the interest of the country. francine: professor, we saw that turmoil, not only in italy but also across all asset classes. has that changed the president thinking? has it changed the italians thinking? what happened on tuesday shows clearly very little change have ae perception can massive impact on the cost of our debt. i think the resident probably didn't consider the fact that putting out a government that will most likely not yet a vote

of confidence by the parliament was not the good solution. because adding a government is a problem. it is a problem. the problem is investors were terrified of very close elections in which the league 12%.d 10% or an election was clearly the debate will be just stay in the euro or go out of the euro. it will be like in the brexit. that is what it terrified investors. today and yesterday the perspective of elections is pushing a father way. investors don't like that. they don't like the discussion of the euro exit.

maybe they hope the other party can reorganize it, because in the last month or so, it has been absent from the political debate. francine: professor, thank you so much. he is nicola borri. in marcus ashworth. also joining us, james barty. thank you for joining us. james, we're looking at all to accidentally in the turmoil that was really quite phenomenal that tests all asset classes on tuesday. what are we in a period of relative calm? james: because of what the president did over the weekend, we are faced with the possible the of an election that might be all about italy's position inside the euro area. there the markets started to price the risk that italy might leave. that is where we saw bund in tpp

spreads go into the mid-100s to excess of 300. that was the risk we were starting to price at what we saw yesterday is if we are going to have a leak or five-star government, at least they've got to try to present some policies to the government. we don't have an early election. francine: i have been on to the , yous it was unclear to me have fresh elections, you're not certain the euro would be a part of the platform. it could be defective referendum. -- could be the fact of referendum. james: with spooked the markets were some of the comments we get over the weekend which were about italy's independence is under threat. we are being dominated by germany. it was the rhetoric that speaks to markets because it felt like

-- if we can't get our way we are going to have to do something else. we know in the past that five-star end of the league had just get to tighten policy. francine: market, how is the bond market -- bond auction yesterday? you have an opinion piece saying got a little bit. andus: they reduce the size what was going to be on site -- on friday and they were not able to get that reduced size away on the 10 year. they were's underpinning in the sense that the crisis at auction deadline were $.25 lower. it showed people were prepared to a debate and pick up a bargain. that is a great sign. clearly, i don't think foreign investors are compared to come back in. it is more to the point that the draghi foot has been taken away from italy. they chose not to.

ambiguous, very much stepping back. madness, will is $.6 trillion worth of balance sheet. when it gets down to defending something which is a thing to do, they are not doing that. a lot of missed politics going on. they are way too smart. francine: the markets were complacent last week and overreacting on tuesday? james: perhaps they were a little bit complacent. you have to understand with the switch was between last week when it seemed to be much more of an italian problem to more of a questioning of italy's position inside of the euro. that is when you saw the big swing in sentiment. the ecb's qe is about economics, stability to the financial system.

what we have in italy is a political issue. in some quarters, and the eu, there's a perception that if you want to go down this populist route, if you want to threat leaving the euro, there are costs to pay. about the risk is to get shut out of the government bond markets. i think some people in the eu will want that message conveyed to the italians. there's a reason the ecb doesn't want to intervene. francine:, guys, think it's a much. more includingty the u.s. 10 year. the u.s. 10 year bond falling with the dollar for the second straight day. the markets see jobs added in april, up from 164 thousand a month before. -- 164,000 a month before.

still with us is james. we are talking about the u.s. do you look at the 10 year? i am going to get a charter. should it be above 3%? james: we will be heading back above 3%. if we get back to fundamentals, the fed is tightening. we have a little bit of a pickup and wage inflation. we will see an extra spike. euro backrought the underthrew percent is because the fed was a little more dovish in its recent minutes. most because of the risk off italian situation. if that calms down, we will see yields back above the percent. francine: i have a clue chart -- back above 3%. francine: i have a cool chart. you can see the kind of correlation for these two curves

up until 2016. then correlate and then it breaks. what happens to that chart? james: the reason why it kind of broke this year is the dollar itself had come under a fair degree of pressure, because people were late to the cycle worried about the 20 deficit. there is a recordation -- a re-correlation because the dollar have started to grow stronger. growth prospects, higher interest rates. the penetration the tax reforms from trump. you had a little bit of a re-correlation in that pair. when we can say is if the dollar is going to go higher, it will be because of those growth differentials what had actually pushed yields and the dollar higher. if you get growth differentials and risk on the other -- francine: thank you for joining us, james barty. he stays with us it coming up

tonight on daybreak, an exclusive interview, james mueller -- james bullard. sticking with america, deutsche bank's chief executive says the bank remains committed to the u.s. despite the rumors. we will get the latest from berlin. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua here in london. deutsche bank's new chief says

lenders committed to america sinking to dispel rumors to the country. the comments, as he pairs some businesses in the u.s. and as an poison what the outcome of this whipping job cuts. let's get to berlin. chet thomas, great to speak to you. ,t seems that every time investors get spooked, the surprise falls at what is his main message for investors? today and overng the coming days to hear from s&p regarding the the rating for deutsche bank. they had put the rating under review just after he was named as ceo. people are following his comments closely. probably the rating agencies as well. we will wait to see what we hear regarding any potential change. that would continue to put pressure on the shares as we mentioned. the shares are below 10 euros

and we wiped out all the games we had on the desk gains we had on the shares. both's --re on the both the ceo and the ratings agencies to see what they had to say. one of the things they did say with the rating on review is there had been so many strategy changes at deutsche bank in the last couple of years. quite frankly ceo changes, they are concerned about the long-term strategy. thecine: the concern is deutsche bank chief executive says he is committed to the u.s., but these rumors, do they make people leave anyway? you decide to go for a rival because you are uncertain by -- uncertain about your future at deutsche bank? chad: that is the $1 million question. there have been a significant number of exits from the bank from top people who had been announced.

of course, it if you are someone who is wondering what your position is, they said that they would by august, people would know whether they would have a position or not. if you're a top performer, you're not going to wait for august. you are going to stop -- start looking now. there is a concern for the bank as they try to right side of the organization, they have top people they would rather retain in the process. francine: chad thomas, think you so much. you can get all the latest stock stories from our equities team by going to first go on bloomberg. this is bloomberg. the brexit show is next. ♪

♪ welcome to our brexit show, live from our london headquarters. i am francine lacqua. let's check what is trending over the bloomberg universe. , it is exemption day

for u.s. tariffs. the administration says it will defend its interest. readng to bloomberg.com to about the political turmoil and why merkel thinks europe is the best guarantee for peace. our most read stories, first of all, one story continues to dominate, italian politics. third place, check out the markets live blog with the move in italian debt. second, italy's president tells populists comey when you are ready. why james gorman things george belief on the global crisis is "ridiculous." if the u.k. fails to lay out its position next month, theresa may

faces ongoing divisions within her own party on the nature of the divorce, particularly the customs union membership. said the dealor was willy wonka thinking. , the former chairman of the conservative party. still with us, james barty thank you for staring -- james barty. thank you for staying around. do we know what the customs union will look like? >> i do not think it will be binary. what the government wants as maximum frictionless trade in goods with the freedom to form trade agreements elsewhere. it is known as having your cake and eating it, and it is perfectly reasonable but the government says you cannot have all that, so the negotiation is

working out what to do, first of all. that will then inevitably be a further period where something close to the existing arrangements persist. but that will not be forever. the dimension that is constantly left out of this on all sides is the dimension of time, because you do not have to do all of this at once. there is a clear decision from the u.k. to leave the e.u.. i am confident that will happen. the arrangements that come into play at the emd of the transition period are not in stone for all time -- end of the transition. are not in stone for all time. you carry --t are what the e.u. does not want is to give the u.k. a free pass that could influence the italian vote. it makes it think any easier, that is for sure, for exactly that reason that the

outset of this, there was a concern the e.u. had to be tough with britain to send a message to anyone else thinking of this, that life outside the e.u. will not be easy. that seemed to have settled because euro skepticism among the citizens of member states have seen to be on the wane. gonecrisis in italy has and brought all that back. establishment has not played this particularly brilliantly in the sense that the establishment has kind of vetoed the parties that did best in the election. their choice of finance minister is an ugly signal to send. the effect of that in britain will be, for those who think we ought to be leaving the e.u., that strengthens their view because they think that kind of

undemocratic intrusion into a that's decision taking prompted euro skepticism in the first place. in italy, the president thought he was constitutionally within his rights. let a bring in the labor member of parliament, chairman of exiting the european union committee. he joins us now from westminster. are you worried that the crisis in italy will see the e.u. no the to make the u.k. perils of leaving? >> there is one doubt -- no doubt that the motivations of the e.u. in these negotiations is as they have said publicly, the u.k. cannot possibly have a better deal or as good a deal outside the european union as we have had inside, it complicates matters, but i think we the u.k. need to concentrate on the task at hand because time is running

out. here we are nearly two years on from the referendum and the cabinet is still arguing about what kind of customs and trade arrangements it wants to have with our biggest and most important trading partner. that is not a good place to be in. francine: what are the chances of fresh elections? hilary: i don't know. that is a matter for the italian political system. they will have to decide. and i don't know what is going to happen. francine: i was talking about the u.k. hilary: about the u.k., right. francine: i was not going to talk about italy. hilary: i don't think there's going to be an election in the near future. the moment of truth will, in the autumn when parliament is asked to vote on the withdrawal agreement. at the moment, i think what

thing has become clear. while the prime minister is trying to get her cabinet ministers to agree on a single policy, what is evident is that even if either of the two customs options, the maximum facilitation or the customs partnership were able to be put in a form that might work, and even if the european union 27 were prepared to agree to one or other of them, it is quite clear that neither of them will be ready by the time the transition period ends in december 2020. in a recent select committee report, he said the only viable option would be for britain to continue to remain in a customs .nion for the time being i think that is becoming increasingly clear, because we are running out of time and the government has not yet adopted a policy. francine: and yet, i speak to a lot of rebels within the

conservative party that feel like they would vote against the prime minister, even if it means triggering a general election. francis: i do not think that will happen. i agree with everything that hilary said. i think some kind of customs union for an interim period is pretty much inevitable. i also agree that triggering an election is really unlikely. having said which, politics are so unpredictable now that as soon as you hear someone say such and such thing cannot happen or must not happen, you must immediately phone your bookie and put money on the opposite. the reality is, it is not in any party's interest to have an early election. more than half of the parties of the labor part -- labour party view jeremy corbyn with more horror.

the dup cannot bear jeremy corbyn so they are not going to risk that. i think the arms are heavily stacked against an early election. francine: is that true that a lot of people in parliament would not vote or would not want jeremy corbyn's prime minister? hilary: no, it isn't. i want a labor government. by the age of 17, that is what i've been transitioning -- campaigning for. whether we are going to have an election is a different matter. as francis said, i think that is unlikely because even as the government were to be defeated on the which rolled agreement -- with drawl agreement in october, vote of this year and a confidence was put down, i think the conservatives and dup would vote to defeat that, but it would put the government in a difficult position. the second sense in which that might happen and it may be due

to with desk due to a group of remainders -- a group of toainers, we are being asked approve a withdrawal agreement when we do not know what our future trading agreement will be with the european union. we may not know what will happen on security and defense corporation, policing, the transfer data, consumer safety corporation. the list of all of the things that will have to be sorted out in the next phase of the negotiation is very, very long indeed. parliament will have to decide whether they are happy to carry on on the cases -- basis of the political declaration that we are told will form an annex to the treaty, but the declaration will not be a treaty or a draft treaty. there may be fresh negotiations on the other side of the table when we moved to the next round

of talks, a new european parliament and commission. that is a lot of uncertainty for parliament to consider and they may take the view the reason we have so much uncertainty is not because it was not possible, it is because the government put in place its red lines which it is now having to repaint as we speak. they realize they are in an impossible position. francine: let a bring in the voice of the markets. if you are a market participant or even the chief executive of a from what do you want these guys, from politicians? james: we would like a degree of certainty about where we are going. the biggest problem in the market space is we look at theresa may's red lines, and that desire to have frictionless trade and maximum access to european markets, and the two are not compatible. to not be in the single market, not pay into the european budget

, and we say we want frictionless trade does not work. even if the customs union side works, you are out of the single market which is disadvantageous for financial services. , we.s. people in businesses would like to be inside the customs union and single market but that breaches the prime minister's red line. the question is which redlines go to get this frictionless trade? >> the sensible thing for the government to have done was to have said, of course there will be a transition period. period, weng that will be in the eea, because that is an entitlement and that would sort out the market issues for a horizon of five years or so until 2021, and would have given business that kind of certainty. customs union calls would not apply in that circumstance, but there would be plenty of time to

sort something out. that would've been a much better way to proceed. rushing into a date to trigger article 50 and rushing to declare the redlines was a mistake. ,y guess is that at the end there will be some kind of reasonably sensible, pragmatic arrangement which is not perfect for either side but which kind of doesn't bring particularly irish u.k. trade to a grinding halt. francine: on the back of that, the question is if we did not have redlines, what was the point of the brexit referendum? you cannot cheat people. that thehe decision british people rich by majority in the referendum is that we are leaving the institutions of the european union, and we are, but that referendum did not determine the future of our economic relationship. thrown morehis

sharply into relief that the border between northern ireland and the republic. there is complete incompatibility between the government and the customs union and single market. , note hand, the necessity the desire, to keep an open border with no checks or infrastructure, and you cannot square that circle so something has to give. at every stage, are we running out of time. the government adopts and says this will not happen and that will not happen, are gradually re-up -- eroding. there are choices and trade-offs and if you make the wrong choice, there will be a consequence. britishage from business on trading goods as we wanted to remain frictionless and easy as it is now, and the only way to do that is to remain in a customs union with the european union. as the trade bill comes back to the house of commons in the next he weeks, parliament will have a

chance to decide whether to instruct the government that that is what is now going to happen. if the government cannot do its job, parliament will have to do it for it. the truth is, the positions on both sides are changing. the e.u. said at the outset, you cannot have a bespoke deal. you need to have one of the arrangements on the shelf, and ignoring the fact that every single agreement on the shelf, these are all themselves bespoke agreements. that was obviously nonsense. there have been lots of positions taken by the e.u. 27 which have turned out to be negotiating positions. i think it was a mistake for theresa may to say these were redlines. it is perfectly reasonable to say these are our objectives, and then you work it out. the negotiation is you find out what are the things you can give that you do not mind giving, but on both sides. to veto -- to be too rigid on

both sides was a mistake. francine: we will try to figure out how she can negotiate going forward. een.k you hillary b morgan stanley chief executive and chairman james gorman says he disagrees with george soros' contention the european union is at risk of breaking up amid italy's challenges. he spoke exclusively with tom mackenzie at the morgan stanley china summit in beijing. james: it has been interesting. the last couple of years, we have extraordinary global synchronized growth, everywhere from japan through to the u.s. doing well, china doing very well, southeast asia, across continental europe. we have had these political eruptions which is what has

disrupted them, whether it was brexit, what is going on in italy, in spain with the coming elections, angela merkel trying to pull together the coalition. it is almost a competition between inexorable corporate andth earnings improvement economic strength against political instability and the rise of populism. men a crisis,lian if you will, which lasted all of 24 hours, is another manifestation of that problem. tom: it sounds like you would take a more nuanced view then george soros who thinks we are facing potentially another global financial crisis and the e.u. faces an existential threat. james: i think that is ridiculous. i do not think we are facing an existential threat at all. this is something we have been playing out over 10 or 15 years. there is essentially in many countries around the world, a

sense that the average performance of the economy is better than the individual performance of the citizens in their country. that has given way to the rise of populism. this is been a long evolving political trend. i do not think the eurozone is in jeopardy. tom: how do investors position? james: you do not react to 24 hour news. the 10 year in the u.s. moved down 30 basis points more or less overnight, and then rebounded. you can kind of respond as an investor. these are not hedge funds. the average investor is trying to preserve their capital for the long-term and generate decent returns. that is not something you respond to. you watch it for a while. francine: that was morgan stanley ceo and chairman james gorman speaking with tom mackenzie. as we were saying, the crisis in

italy could be bad news for britain. the turmoil may strengthen the resolve of that you government that the uk's suffer the consequences of brexit. francis, when you look at what this means for the other negotiating side, which he often forget about, when you look at the u.k. media you can forget it takes two to tango. you have to make sure the e.u. is happy with the arrangement. how much quicker can theresa may try and get angela merkel involved to bypass brussels? francis: angela merkel is a very important figure in the e.u. but not as dominant as she was. by was very much weakened the german election, difficulty forming a government, and a swan song. to be honest, british governments in the past, david cameron on a number of occasions was assured that angela would

sort things out, and she could not because her writ does not run throughout the e.u. this is much more complicated. about one'sendency own negotiating position. the truth is, it is in both sides' interest to have a sensible, pragmatic outcome. no one would be better off if we crash out without a deal. that has to be understood. i was interesting to see prime minister trudeau in calais -- canada saying in relation to the u.s. government threats on in relation to the nafta renegotiation, no deal is better than a bad deal. where have i heard that before? it may not be a comfortable thing to say, but it is true that a bad deal that locks britain into something that would be uncomfortable for too

long a period would be worse than no deal. it is in all sides' interest to get this sorted in a pragmatic way, and not think you have to sorted out for all time, because that is too difficult. fastorld is changing very and no of us really know what the effect on the world economy will be when ai really gets going. that is not as quick as people assume, because there is a long way to go yet. nonetheless, there are unpredictable changes. no sensible government, whether in the e.u. or u.k. or anywhere would want to lock itself into arrangements which limit for too long, too much their freedom of decision-making. francine: the counter argument would be if you look at italy, it will hurt gdp and european integration if you look at the tariffs, and hurt the german

economy. the e.u. would have a better chance or incentive to reach a compromise with the u.k. james: i think the e.u. wants to reach compromise with the u.k. terrible, and there is very few bad deals that are worse than no deal. francine: economically? james: you have wto tariffs that will be very severe. the hit to the u.k. is much worse than the hit to the european economy because our shares of exports is bigger than the u.k. share of exports to us. needrexiteers believe they -- we need them more than they need us. we need some sort of compromise, but that needs some of the red lines to go. we arethe difficulties, trying to unravel something we have been a member of for 45 years. you cannot unravel that quickly.

you need a longer transition period. that is why ie a membership would be the best thing to do it -- eea membership would be the best thing to do. francine: thank you so much. we are getting breaking news from spain, and this is the other fault line in the european union integration and the economy. mariano rajoy facing a decisive and divisive debate in parliament today as socialist opposition seeks the votes to oust him. we just heard from the socialist leader saying to mariano rajoy, your time is up. he called on the prime minister to resign. those are live pictures for this debate going on in parliament. i think it started about an hour ago and could last for several hours. thank you so much for joining

us. markets, later today we are joined by the canadian trade minister for her's first dish his first conversation of the day, shortly after 10:00 a.m. -- his first conversation for the day, shortly after 10:00 a.m. u.k. time. ♪

♪ francine: this is bloomberg "surveillance." extra market checks today, european stocks edging higher following the asian equity bounce. spainof countries like and italy are trying to rebuild their confidence with investors, and a political muddled outlook. bloomberg "surveillance" continues in the next hour. tom keene joins me out of new york. we will be speaking to china -- china straight minister. ♪ what's a gig of data?

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and with millions of wifi hotspots included, you'll pay less for data. it's a new kind of network designed to save you money. click, call or visit a store today. ♪ francine: dry again, italy's president gives populists another shot at forming a government.

the league apartment on hold. , jameslisten to soros gorman bats away concerns of a global crisis as stocks bounce back. >> i think that is ridiculous. i don't think we are facing an existential threat at all. deadline day, brussels braces for trade offensive from president trump. metal tariffs are due to come into effect at midnight washington time. i am francine lacqua in london, tom keene in new york. we will definitely do extra market checks and then we will get inflation in the eurozone. let's have a look at what is crossing on the bloomberg terminal, accelerating more than forecast to 1.9%. i am sure that will be a little bit of respite for mario draghi who has been struggling to see inflation take cold. -- take hold. tom: i am really taken with the

idea of a higher inflation buttressed against lousy wage growth. you wonder if they get that high inflation in europe today have the same problem with wage growth as they have in the united kingdom? francine: we will focus on inflation and bonds across the world. let's get straight to the bloomberg first word news with sebastian salek. sebastian: the european union is breaking for a trade offensive from president trump who plans to carry out his threats on .ariffs on aluminum and steel it could happen as early as today and the e.u. will not negotiate with washington. it was the highest level talks and thenorth korea united states in years. met again yesterday to discuss preparations for

president trump's summit with the north korean leader. italy's prime minister has not given up. sergio mozzarella wants to find a wants to findl for the second time in two years, president trump's network has fallen. fallen.orth has he is valued at 2.8 million -- billion dollars, down $100 million. -- global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek. this is bloomberg. tom: thank you so much. a data check, it is a quieter market two days in a row following three days of carnage. 1.15, 1.16 two days in a

row. oil not part of the story. the vix, a 17 handle. i have only one screen, i am sorry. the markets are so quiet i did not have a second screen today even though i am watching german two-year. francine: i put the german two-year and the italian two-year and the u.s. 10 year. relative,e looking at the markets are big change from tuesday. european stocks edging higher. asian equities higher. investors are trying to rebuild our confidence but the political outlook and southern europe is modeled --d -- muddled. we have a little bit of breaking news that i find quite andificant, vladimir putin the abu dhabi crown prince will

meet on june 1. that is a breaking news headline and we look at geopolitics in the inflection point with the market. tom: very quickly on the bloomberg, this is the german two-year i was focused on. of marchof the calm into april into may, down we go. this is using a bellwether european peace, how much we have come back to normal in the last two trading sessions. francine: i did something a little bit different for a chart that matters. i knew we would talk about italy and spain at length, so i did something that actually charts the u.s. 10 year against the u.s. and japanese yen. in white, you have the u.s. gp why curve and blue you have the 10 year treasuries. they were correlated until january and then that stops. this is after the bank of japan

says it will leave bond purchases unchanged for jim. our top -- june. our top political story, uncertainty in italy and spain. anne-marie, let me kick it off with you. indo not have a government italy. how close are we to having the populists govern? annamarie: we are likely to get some sort of movement on which direction italy will be going. the man right now is matteo sell vini. -- salvini. he is headed back to the capital this afternoon and he has two choices to make. either he will go along with suggesting is is to drop the finance minister and move him to the foreign ministry , but we could even see today carla caught a rally --

cottarelli being sworn in today. for some insight on what is the feeling on the ground, everybody has been talking about this post. madhouse italy. to be honest, this is a reflection of how the politics you wereng while sleeping, we have been living every headline over and over again. the changes of what is happening , so potentially today we could see a populist government or technocratic government come to play, but that would only be for the time being until elections in the fall. francine: the socialists, how close are they to lighting up enough votes to topple the president? there is currently the session in parliament which is quite heated. ben: they are very, very close. the old adage that spanish politics is never bet against

mariano rajoy, but we are going to test that. what we were hearing from the two key parties is that they are both ready to back the socialists tomorrow in the no-confidence vote. francine: thank you both for joining us. we will have plenty more from madrid and rome. markets,e it to the which were rattled this week over concerns over italy. morgan stanley ceo said the political uncertainty is weighing on sentiment. >> it is almost competition between inexorable corporate growth earnings improvement and economic strength against political instability and the rise of populism. the latest italian many crisis, if you will, which lasted all of about 24 hours, is another manifestation of that problem. francine: that was the chief executive of morgan stanley.

nows turn to our guests thank you both for joining us. andrew, let me start with you. when a look at the turmoil we saw in the markets on tuesday, was a justified? was it ends up no volatility -- pent up no volatility or are you concerned about italy? andrew: we are quite concerned about what happens in italy next and will be for a couple of years. the market action on tuesday was extremely unusual. probably not a surprise, but you have just got to step back and take a high-level view. you have a populous government. sorry, the potential for a populist government. you have a debate over whether they can have an arch eurosceptic as the finance minister. if you have concerns about the populism in europe, it

is happening at a time when italy's growth is not bad. immediate risks now and in the next recession, we could see much broader pressures. tom: i want to congratulate you and pimco for moving forward on wall street. andhad stanley fischer cornell at one of years recent meetings. how do you synthesize where the dynamic is now on real interest rate? realpimco presume a higher rate structure as we move forward? andrew: if you take real rates or nominal rates, our next -- best guess the next few years is we are in range bound markets, we could see upside or downside risks. we see them pretty balanced. one source of upside risk for real rates would be if we see an improvement in productivity growth for the u.s. economy and

for the world. it would be good news. we get a higher growth rates, but that could be a key cause rates -- higher real rates. we have talked about our new neutral framework for the past years. that is the first building block. productivity growth over time would be a source of upside risk. smith, aan matteau sense of volatility. how do you play that volatility? >> volatility started to pick up in january and february. in the second half of 2017, you had a pretty benign environment for equities with volatility remaining low interest rate supportive. we have moved to a slightly different environment where growth is accelerating and volatility has picked up.

i think people scale that position in the next three months. expectedt have synchronize growth and low volatility from last year would continue and i think they retreated slightly. this year, you have had a relatively sharp rally in the u.s. dollar and that throws some of the momentum trades of the last 18 months offside in the equity market. a weaker dollar is consistent with higher commodity prices and higher inflation and moderately higher interest rates, steeper yield curves, and the rotation of cyclicals away from defenses. the way people were moderating those straits, they now have to think of whether -- those trades , they now have to think of whether the dolly -- dollar will rally a little bit. francine: going back to the -- don crisis, is the ecb

they have to delay their normalization process this year? is no particular reason for them to respond to events in italy. it would be surprising if they did. italian yields are up but still pretty low. before this italy kerfuffle, the indications on growth, on core inflation, there is plenty of reasons to think the patient move slowly -- that they should move slowly. we think they will move back the end of qe moving back the eventual rate cycle. i do not see any reason why they are responding now. it would be interesting if the fed had more impact on spain, portugal, and others. francine: i have a good chart i would like to show you, the italian-spain 10 year yield spread. spiking up and going back down, are you buying anything in the

markets when it comes to periphery bonds? andrew: we have been underweight and we think it is fine to be underweight. watching from the sidelines, i got more gray hair over the weekend because in times of great uncertainty, you can just try and watch on the sidelines. anyone who has a clear idea on italy is much better off than we are. spain, political events in spain , i do not think it is a big deal if you are spanish and you care about spanish politics. from the market point of view, it is usually significant. the biggest risk to spain is italy has well they have made progress, if italy further destabilizes, we would expect them to become twins again rather than better progress be seen for spain. tom: i make note of your pain over gray hairs of the weekend. i will make note of that right now.

one final question before we continue through the hour, the value of cash. what is the value of cash right now in a portfolio? stephen: basically cash gives you optionality. cash is giving a negative real return. it is not an asset you want to longg -- you want to be over an extended period. cash gives you the ability to reenter the market at a low level. trying to second-guess what will happen in italy over the next two years is a bit of a mug's game because what we know is less than we do not know. italylitical reaction in and the financial reaction on tuesday, the bond markets respond by immediately almost doubling your cost of funds.

they sickly, it throws the expectations you have embedded in your budget completely offside -- basically, it does the expectations you have embedded in your budget completely offside. the market may have tempered some of this. francine: thank you, both staying with us. coming up next, the trade minister of canada. we will be talking tariffs and metals, including aluminum and steel. we will also be talking about nafta. the spanish prime minister is facing a very difficult and decisive -- i would say divisive -- debate in parliament. the opposition is seeking to vote to out him. they may be able to have enough votes to just do that. breaking news from the opposition party, the socialist leader pledging to honor budget discipline.

he seems to be speaking to investors at the moment. this is bloomberg. ♪

♪ >> this is bloomberg surveillance. let's get to the bloomberg business flash. the ceo of deutsche bank is trying to dispel rumors about their future in the u.s. the u.s. is still the most important market for the bank. they are cutting back on some businesses in america and 1/5 of its u.s. stock could be cut. raising his fund-raising targets to $12 billion in bringing in existing

shareholders in a yuan dominated financing round. is $150 billion, the most valuable tech firm in the world. shares of boccardo are rising today and it will be added to the ftse next month. it has risen more than 130% this year. that is the bloomberg business flash. francine: we were talking a little bit earlier about some of the market dynamics when it came to italy and some of the political turmoil and the impact it has on periphery. we now want to talk about dollar dynamics. i know you have dollar trade weighted and i have pound trade weighted. one of the biggest stress points with that normalization is emerging markets. still with us are andrew and stephen. stephen, if i ask you whether you are worried about the

emerging markets and the governments that feel more fragile because of dollar rising and fed normalization, does it mean you would not touch them or deal by them at the margins? stephen: certainly by no means would we not touch them. far from that. we have favored emerging-market equity over the past few years because if you think about the picture with the ,ecovery in commodity prices and an improvement in health in the overall economy's. i think where the dollar is strengthening further, that may be called into question but our expectation over the next 10 years is there is room for the dollar to weaken. despite the evident kerry and the dollar favor, there has not been a widespread move into dollar assets. on a parity basis, we are calling it moderately lower in the longer term and that maintains a gravity for the dollar rate. francine: where do you see

dollar going? andrew: for the next few years, we see it pretty neutral. you have the twin deficits and growth differentials and rate differentials. it broadly valid -- balances out. in the g10 space, nothing out of whack. we have a positive view on emerging markets. there is idiosyncratic risk. the dollar this year, the fed rate hike cycle clearly makes it a more difficult environment, but against the undermine -- underlying fundamentals we think it is pretty positive. francine: if you look at the faulty points when it comes to fed normalization, can the fed normalizes much as the markets are pricing in? or because of trade or tariffs, will they scale it back? andrew: we think they can go a bit further. have a pretty balanced growth

inflation outlook. sense is that our new fed funds rate% is where we may get to and we do not seem change to that view. view.ined to that if you had an upside in the u.s., that could make life more difficult for the fed and emerging markets. the fed focuses on the u.s. but it is the world's central banker and i am sure they will be paying attention to international spillovers. francine: we had two guests yesterday really fighting and disagreeing over what an inverted yield curve means. you can see every time we have had a recession in the past, there was an inverted yield curve that showed up before that happened. is this time different? should it be a dilemma for the fed?

stephen: the actual slope of the yield curve, although he has been getting -- it has been getting more shallow, seems completely uncorrelated with u.s. growth. the idea the yield curve may invert, it will be interesting to see what the long end of the u.s. market would be to further fed tightening. the fed is in a cycle of tightening but the real rate is still negative in the states so you have not had a real monetary tightening. if we think about monetary conditions are generally using the chicago fed, there was a modest tightening last year although nothing that would register on the historic scale, and since then conditions have moderately eased. nominal rates have risen and so has inflation. francine: you have a great report, which is your latest secular outlook. you argue we are entering a new period of radical change.

investors in the future will resemble that post crisis era, could be a series of rude awakenings. where do you think the main mistakes could happen and what does it mean for your investment strategy? andrew: we have had 10 years of post crisis recovery following 2008. it has been a period where central banks have ruled, buying the dip has worked. think when we prepare for the next several years, this could change. less dominant central banks, less ability of central banks to suppress volatility, so a rise in volatility. we already have populism in the u.s., a populous threat in italy. we think that can increase over time. there are different forms of populism, protectionism, redistribution.

one other thing, we think it is a good chance that we have a u.s. recession in the next three to five years. late cycle fiscal expansion in the u.s. increases the probability. one conclusion is do not assume the past will be the same in the future, and be prepared to take ds oftage of these perio volatility rather than being on the wrong side. tom: i want to bring this up quickly on the screen. gross ina guy named the news who had a bad day in the bond market. i believe he used to work at a shop called pimco. when i look at one given bomb demand or -- bond manager like the janus constrained fund, it is about day but it is mostly a thematic bet on what central bankers are going to do. -- and i dorategy

not want you to speak specifically about mr. growth -- but is betting on central-bank theory a more problematic guests in the future? banks: i think central may become more, it may be harder for them to be so predictable. they have been volatility suppressors and they could become contributors. the buy the dip type of mentality, that may have to change. we should expect probably higher fixed income market volatility. tom: i want to come back and talk about this further. this is bloomberg. ♪

♪ francine: i am francine lacqua in london, tom keene in new york. we are talking about trade and tariffs. yesterday we had a pretty good

conversation with the prime minister of canada, justin trudeau, saying he wants to build a canadian economy that will thrive in decades or more from now. if that means losing a short-term edge to donald trump, so be it. we will talk about trade with the canadian trade minister. macron asith emmanuel he walked into the oecd meeting. macron: i am always optimistic. do. my best in what i can that was the french president emmanuel macron. joining us from the oecd forum is the minister for trade for canada. always a pleasure to speak with you, especially in such an important week. we find out later tonight

whether the tariffs should go ahead for canada and the e.u. what have you been hearing? that even speaking to u.s. counterparts? >> first of all, thanks for having me. any draft of the unacceptable. we are seeking a permanent exemption. government andup canada is in a particular situation. the u.s. has a surplus when it comes to steal with canada, about 2 billion a year. when it comes to national security, let's look at the facts again. we are partners in nato and norad. a full exemption is what we are senseg and is what makes when you look at the integrated nature of our industry. the only realistic outcome is a full exemption for canada. francine: what are you hearing from the u.s.? they are saying that canada is a potential security threat.

i would say first of all, any decision on one side of the border would have consequences on both side. the nature of the industry is integrated. when it comes to border, look at the facts. we invested about $30 million to strengthen the integrity of our market and outer -- add border agents. we want to protect our border and the integrity of the canadian market and north american market. we are taking measures. i have said to our u.s. colleagues, canada is not a problem, part of the solution. we are going to seek full exemption. tom: i would like to suggest that what i would really like you to do is fix the montreal canadiens, but we will not go there right now. >> thank you for that. we have to work longer on that. tom: minister, you took your law

at case western reserve in cleveland, ohio. you understand the border between canada and u.s. would you suggest what has changed is more of a mercantile united states of america? is that what this debate is about? is it new mercantilism by president trump? >> i would say, the big goal should be, for me it has always been -- and i was reminding people recently that about 40% of everything produced in the wild is going to canada. the big picture is, how can we make north america more competitive? how can we build more in north america? how can we sell more to the world? 9 million jobs in the u.s. depend on trade with canada. we are the largest trading partner. it only makes sense to see, how can we become more competitive

together and compete with the rest of the world. we need to work smart and by working together, we can achieve that. tom: do you and minister friedland see any indication that the united states can surgically apply tariffs on selected countries? they can go after germany here and china there and argentina in another matter. does that theory work? >> i would say, we believe in the rule-based system. you have to look at what has happened with the world. oecd and wee believe in an international trading system based on roles, because the says served the united states and the rest of the world for decades. these institutions we built have lifted millions of people out of poverty. jenna that is leading the way in -- canada is leading

the way in the oecd for modernizing. as long as everyone works within the international trading environment in accordance with the rules we have subscribed and drafted together, i think we are better off. for canada, we are taking a full exemption and we believe it only makes sense if you look at the integrated nature of our industry. the message should be, let's work within the roles but when we all follow -- rules. when we all follow the rules, we get a better result. francine: economies in the oecd -- has china been brought up at the oecd forum? >> there is always talks about difference, and when you talk about income, i said we have a process in place for investment. national security is part of our process.

the good thing with a rule-based system is our rules are known, fairly applied, and clear. what we are offering a certainty, predictability and rule of law, and that is providing investment. we have our own roles in canada and when you follow them, we can invest. we will always protect our workers, families, and national security. francine: how should western economies deal with chinese takeovers as a whole? oryou do it by a bloc country by country? >> our national security investment laws are made for any investors. the decision we took was based on analysis. we want to continue with that. our system is based on evidence and role-based decision-making. it is for every country to look at their investment laws. the benefit of ours is they are very clear and fairly applied.

when it comes to the rest of the countries, there is ways for us to work together in order, for example, we were talking about technology and artificial intelligence, i encourage people to work together we can -- because we can outsmart the composition dutch competition. -- competition. the back-and-forth between mexico and canada as they confront trump economics? >> we have been working with all three parties. .his is a three party agreement jenna that is always the one to be at the table to be constructive and positive. we are always going to be at the table because we believe a modernize nafta works for all three countries. when a look at the integrated nature, what makes us unique -- i am here at the oecd -- but when you look at canada and the united states and mexico, it is

the integrated nature that our supply chain works together. when you look at analysis, you have to take that into account and that is the message we are bringing to the u.s. francine: did any du officials or european ministers ask you the best way to deal withfrancis or european ministers ask you the best way to deal with trump and what advice did you give them? >> i think it is to engage. i was believe the best way to engage is to be positive and constructive. we understand there is different views, just by talking about the reform of the system, making sure we modernize it and understand the voice of the united states. it is for all of us to be constructive in proposing alternatives and modernizing and having alternatives for the 21st century. we are working with partners to address issues that have been raised while preserving what is good, modernizing, and making sure it works in the 21st

century. tom: the trade minister from canada at the oecd forum in paris right now. our first word news, here sebastian salek. sebastian: the european union is bracing for a trade offensive by president trump, who plans to carry out his threat to impose tariffs on aluminum and steel imports. the e.u. said it will not negotiate with washington while it is being threatened. the lorimer for harvey weinstein will last the court -- lawyer for harvey weinstein will ask the court to dismiss rape and sexual assault charges. it is the first criminal case brought against him after a number of allegations of sexual misconduct. wall street is one step closer to rolling back the toughest trade restrictions since the financial crisis. trump kicked off the prices to

ease compliance costs to big banks. commentl seek public before making a final decision. 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've sebastian salek and this is bloomberg. francine: thank you so much. let's check in on what is trending across the bloomberg universe. it is deadline day for some u.s. tariff exemptions. headout why china slams -- to bloomberg.com to read why amid political terminal -- turmoil, angela merkel thinks it is the best opportunity for peace. continues to dominate, italian and spanish politics. check out the markets live blog with moves in italian debt. italy's president tells the communists, call me when you are

ready. why morgan stanley's head james thanks george-- thinks george soros' idea is ridiculous. this is a classic bloomberg this is a classic bloomberg chart, which strips away some of the other dynamics, for example dollar. euro area inflation hit the fastest pace in more than a year which could be good news for the e.u. officials debating on the future of policy and whether they want to give the market time for normalization. how much does italy complicate everything? this may make their lives much more difficult. >> on the inflation data, we know there is oil-based effects. underlying if laois just under 1% and our forecast is for it to stay there.

underlying forecast is just under 1% and our forecast is for it to stay there. clearlyd complications, we think you need to be careful on assets which rely heavily on central banks. thatreful about assets rely heavily on central bank support. indicate the peripherals in europe, the end of qe tightening in terms of policy rates over time will be a challenge and a hurdle, but i think the moment, politics, having two populous --ties, such an unusually unusual combination coming together, in their first draft they talked about euro axis -- exit and in the second draft they took it out. in the political system and euro exit risk, they are publicizing this risk very well.

atncine: if you look inflation, this is kind of what mario draghi has been waiting for. that gives him an indication to hint at asset purchase normalization, but is it risky with italy? isphen: the headline attention grabbing but core inflation is moving up gradually . i would think the ecb would pay more attention to that in terms of political risk. i would think they would look much more at credit numbers then inflation and wage potted -- wage growth rather than attempting to head off clinical risk. i would've thought the credit numbers are way more important than anything else going on. francine: thank you both for joining us. both stay with us. coming up, david costing, goldman sachs chief strategist for u.s. equities at 9:00 a.m.

new york, 3:00 p.m. london. ♪

francine: this is bloomberg "surveillance." deutsche bank's new ceo says the lender is committed to america, seeking to dispel what he calls rumors to the contrary. as rumors -- the news comes some employees await the outcome of the sweeping job cuts. our germany bureau chief chad thomas joins us. if you are commenting on the rumors that does not put you in a strong position. how does the chief executive get ahead of the rumors? chad: it also comes down to how you describe or characterize what the cutbacks would mean.

we have heard from sources that they are looking at cutbacks in the u.s. of 20% of staff and certainly no one has suggested publicly they are going to pull out of the u.s. by any means. the way he talks about these rumors, it has a little bit to do with the characterization of their pullback in the u.s. and their efforts to right size their business outside of germany in particular. tom: what do they want to be? on yesterdayice and he could not tell me. i do not expect you to tell me. is the new leadership of the bank telling anybody what they want to be? chad: i think that is the $1 million question here. i do not know if they have that answer. one of the issues deutsche bank faces as they have gone through so many leadership changes in recent years and changes in their strategic direction, that

i think many people within the bank would struggle to answer that for you. people who are underneath the top management are wondering that themselves. tom: are you seeing a brain train? i saw in article in barclays yesterday. are people that are valuable walking out the door at deutsche bank? have heard from sources that pretty much everyone in top positions has their resumes out and are looking around for jobs. that is definitely a big concern. we are also waiting today to hear at some point from s&p for a possible downgrade. that will accelerate their problems if that were to take place. review afterhem on they named their new ceo and said by the end of may, they would come back with details

about that review. and needleson pins in germany on what that review will say. francine: our germany bureau chief, chad thomas. bloomberg users can interact with the charts shown using g tv . catch up on key analysis and take charts for future reference. we are back to the battle of the charts. i do not think i have one in the top two. i do have the yield curve .nversion, so that is my win you can vote by going onto gtb go. .o g tv this is bloomberg. ♪

♪ sebastian: this is bloomberg surveillance. google wants to turn its phone into a legitimate challenger to the iphone. the company is working on an upgraded pixel smart phone line to be released this fall. one model has a nearly edge to edge screen but the pixel has not had a major sales impact.

the sec is negotiating claims aflac may have misled investors. they possibly manipulated earnings. affleck says the claims are without merit. the good times may be over for the world's airlines. rising costs of fuel will eat into profit significantly. saysllied association airlines will report profits but not as high as expected. they are on track for a nice annual increase. that is the bloomberg business flash. tom: jobs day tomorrow and the economics of jobs day, maybe it looks for a great nation. great unemployment rates in germany and america, and you wonder what it means for corporations. youhen, let me start with on what multinationals will do. will they see robust revenues as a general statement and will we continue to see ample earnings

growth for multinationals? stephen: short answer, yes. that is true not just in the eurozone but elsewhere. we are looking at respective growth in america, partly by this -- the job cuts. is good inowth japan, decent earnings growth in europe, and the nominal growth is recovering and spreading leverage from which companies can benefit. it is nice to talk about fundamentals rather than continuing to be blindsided by politics. tom: there is the fundamentals, italy and spain free. let's bring it over to jobs day in america, it is about wage growth. corporations are killing it. they are making rules of money. -- oodles of money. where is wage growth? andrew: corporate profits and

the share of gdp is something that reverts overtime. it has not happened yet, but with our themes of the next 10 years not being like the last, there is good reason to think we may see a shift more to wages overtime. international competition is something which is very important and technology is very important, even with sub ,% unemployment in the u.s. very low unemployment in germany . there seems to be very little wage bargaining now. tom: is it just because it is going to corporate executives and corporate incentives? is there such a new incentive for executives that they pull it away from labor? andrew: you have not seen productivity growth and historically it is associated, so that is another way to get to the higher real wages. , theyou look at companies

reluctance of companies to invest in physical capital is important. the big growth of financial assets, cash on the balance sheet is good for the banks. goodes not share expectations for companies on revenue growth and increasing market share. tom: thank you so much. we have a treat in our next hour. time -- strasheim will join us on china. this is bloomberg. ♪

♪ tom: this morning, a second day of calm markets, italy announced, and political term are. the u.s., curve flattening ahead

of the jobs report. here, everywhere. donald, waiting for a trump exit. on georgegorman, soros. this is "bloomberg surveillance," i'm tom keene in new york with francine lacqua in london. would you explain to our american audience why spain today? i thought it was italy, italy. where does spain show up? francine: it showed up while we are on holiday. i think you are in china looking at gdp measures. today in spain, the spanish opposition is getting close to a vote that would topple the prime minister. if you are a bloomberg tv viewer, you are looking at the

prime minister. on radio, he is addressing parliament. biggestalists, spain's opposition party wants a no-confidence vote on friday. this is because of allegations ajoy, his party, not impersonally. they may be able to get enough votes to topple him. that is quite significant. tom: first word news in london. sebastian: the european union breaking for a trade offensive against president trump. the president plans to carry out this threat for tariffs on aluminum and steel with canada, mexico. highest level talks between the u.s. and north korea on american soil for 18 years. a top adviser for kim jong-un

had dinner with mike pompeo in new york. they met again yesterday to discuss preparations for the summit. president has not given up on the populist who calls him an enemy of democracy. the senior official says, the president wants to find out whether the populists want to revive the bid to form a government. the men selected as interim prime minister is waiting in the wings if needed. for the second time in two years, president trump's network has fallen. billion, down$2.8 $100 million over the past year. revenue at his golf courses and fifth avenue tower in new york, fell. james gorman dismissing george soros'warning on the eu and the economy. james gorman says another crisis may be at hand and the eu is at risk of breaking up. >> that is ridiculous.

i don't think we are facing annexes uncial threat. -- and existential threat. this has been playing out over 15 years. there is potentially in many countries around the world, a sense of the average performance of the economy is better than the individual performance of citizens in the country. that is what has given rise to the wave of populism. sebastian: he also predicted that that would raise interest rates three more times this year. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek, this is bloomberg. tom: data first. bring this up, posjose. curve flattening, a steeper yield curve. francine, go through your data check and then i want to go to sears roebuck. francine: european stocks higher

following asian equities higher. investors trying to rebuild trust, confidence, even though the political outlook for italy and spain are muddled, to say the least. there is the uncertain global trade picture playing on the margins. dollar falling, euro climbing, italian bond yields declining. tom: there will be a book written 10 years from now of the bleeding of the sears roebuck company of chicago. here are the latest headlines, moments ago. this is how i look at it live on air and i am bringing it up so i can see it clear. they will close 72 stores. 100 stores nonprofitable. this is amazing. they have miniscule cash on hand. this is one heck of a book written any number of years out. francine, europe? francine: the lead story for the markets -- the leadership crisis in italy and spain.

rome,e our reporter in and our editor is in madrid. the parliamentary discussion is going on. strong words from opposition. starting in madrid. how likely is it that the prime minister will be toppled? reporter: seems more likely. perhapss been rhetoric, more important, the socialists, bidding to take over has promised the nationalists he will honor the budget. that means they get 500 million euros of extra spending in the region, that could be crucial to securing votes. francine: annamarie, we are getting news. we're getting news out of italy. there is a meeting on thursday for government talks. three options. they find a government, they don't find a government and there are flesh elections --

there are fresh elections or someone else is put in as prime minister? >> we're just hearing from officials that these two populist leaders will be meeting. yesterday they said a working coalition will not work between them. the sticking point between them savona, they are trying to move him to the foreign ministry. mayo has signaled that he is willing to do it. salvini was saying, why do we have to change because the germans don't like him as a finance minister? this is a sticking point. they are not able to come to an carlo could be leading the government for the summer and likely fresh elections in the autumn. tom: thank you so much, italy and madrid this morning. headlines continue.

we have this globally through our bloomberg platforms, of various news bureaus in italy and spain this morning. remove want to equity market,. with ginae to speak martin adams, our chief u.s. global equity strategist. what is the theme? an open question -- in the blur of selling, what are you writing about? the index is stuck in this range. playing great defense, defending the lows. 200 moving average. now 100 day moving average but not able to garner much offensive firepower. we are seeing a rotation of domestically orientated companies. small-cap index breaking new highs. micro caps doing well. large caps struggling, speaking

to what is going on globally. quasi-crisis. european debt spreads widening, dollar rallying. these are different macro characteristics from last year. markets are playing on that. tom: do they revert to the mean? do you load up on big cap multinationals now because they have underperformed? do you play that game or steady as you go? gina: i don't think you load up. domestic stocks in the index show potential. they have underperformed long-term. a lot of what we are seeing is reversion to the mean. multinationals pulling back after a year and a half of tremendous performance. domestics gathering momentum. when it comes to strategy, stay cyclical, do not move defensively. rates will move higher, the economy and earnings are proving. you pick specifically. tom: i am thrilled you are here

for the hour. lots to talk about on equity and the theory within the moving average soup. we are thrilled to bring you next, donald of evercore isi voice on president xi jinping. coming up, in new york. a beautiful new york. this is bloomberg. ♪

♪ >> this is "bloomberg surveillance," and let's get the bloomberg business flash. google wants to turn its phone into a challenger for the iphone. the company is working on an upgraded line to be released this fall. has edge to a screen.

president trump says major drugmakers will announce voluntary price cuts in two weeks. the president did not provide details. companies contacted, say they are unaware of price cuts. warren buffett wants to invest -- wanted to invest $3 billion in uber. it broke down in terms of the size of the agreement. that is similar to the deal he made with goldman sachs during the financial crisis. bloomberg business flash that is the -- that is the bloomberg business flash. tom: right now in washington before we have a wonderful conversation, is kevin cirilli. i don't even know where to begin and i will bring up delicately what is viral now.

the economic and criminal justin's consultant, kim kardashian -- and criminal justice consultant, kim kardashian. how did that happen? you are the expert. kevin: you had kanye west treating favorable tweets to president trump. all the celebrity aside -- criminal justice reform is incredibly important. one can make the argument the hollywood advocacy mixed with -- i will letorld the viewers decide. tom: elegant way to put it. mr. sessions does not have that option. he has a passing discussion on criminal reform. he was distracted yesterday. what is his major distraction now? kevin: the president. president trump is once again criticizing jeff sessions, saying he wishes he would have chosen someone else for the job.

i can tell you, yesterday we were talking on this program about how the president was facing pushback from republican trey gowdy. i spoke to a source yesterday that tells me the white house is furious and frustrated at congressman gowdy for saying that spy gate goes too far. you will be hearing pushback against any republicans out of step on the mueller investigation and spy gate. this is the biggest political unknown into midterm elections, the mueller investigation and the timetable for when it wraps, and whether or not it mobilizes the progressive left or conservative right to get to the polls. trying to price what will happen with congress? this is the biggest unknown. tom: we treasure the daily visit. our chief washington correspondent. waitingace, i have been

for this conversation for days. shanghai, from donald, evercore isi head of china research. both of you, good morning. bloomberg intelligence here as well. the third revolution. if president trump took a moment to read dr. economy's wonderful book on president xi jinping, what would be the message out of that book on the operations of this new chinese leader? they are going to pursue their own version of state capitalism, different from what the washington view is. it is a top-down approach. it is a lot of central government involvement in industries they think important. washington in this trade push, wants to eliminate this. there is no chance that is going

to happen. we have two countries, biggest in the world, biggest contributors to growth, going in different directions. that is the turmoil you see. francine: donald, is it going to get worse? is the trade tension going to turn into a war or can both sides keep it at bay? donald: i don't really know. washington has gotten unpredictable. officein our washington follows what washington does carefully. china is in a position of seeing washington is unpredictable, unreliable and as a consequence, they react to actions, not tweets, reports or speeches. tom: part of this is the word, hipivot.

it was a defining word of the obama administration. in yourre you sit, experience in finance and international relations, what is the trump pivot? i cannot make it out between secretary ross, mr. mnuchin -- what is the pivot? kim: it is very difficult to determine it. candidate -- tom: i meant the representative of the obama administration. kim: anti-globalism got carried away in the 2016 election. it has created expectations about what can be done in policy to satisfy urgings that are unrealistic. the pivot the president seems to be attempting is to force people toriffs for come to the table to negotiate

trade practices. tom: it is almost 19th-century. they should just wait out the biggest headache. i was just reading about the german colonization near beijing in 1890. they just waited until the germans left. is that what they will do here? donald: you can find plenty of people in china who will have a conversation in the courtyard who will tell you that the time is 30 months. they know the u.s. election cycle, no one knows what will happen in november, 2020. we may have a new economic regime or four more years of the same one. they have a longer-term horizon than we do. they are -- time is on their side, they are shuffling their feet because they don't know what washington is going to do next. francine: if you see good fundamentals and a strong chiefy, should

executives not reinvest or are they that influenced by politics? donald: i think this is much more than politics. these are the two biggest economies in the world having this dispute. in the long run this should work out. 20 years from now, china will be 50% larger than the u.s. economy. it will be the growth driver, as it has been. there is much more in common than in conflict but when you do not know what the rules will be, when there are turns, it is quite reasonable for investors, all people to basically sit and wait. agree, kimo you wallace? kim: i agree. dona has a plan and as said, they have a plan for 2025, for technology and to be industrialized across platforms.

the u.s. does not have a plan. china benefits from a top-down centralized decision-making process. thankfully, we do not have that in the u.s. as an example, look at the flip and flop on zte. we find out later the president had reasons, possibly personal and otherwise to make a decision. it's at his own party against him. this is not a president who is yet demonstrating they have a plan, a strategy they have agreed to and are implementing. that gives other people confidence. tom: in the prism of washington dc, how should republicans on capitol hill respond? i was in china for 10 days. the number one response from the chinese i spoke to and the americans i spoke to, was simply -- where are the republicans in a cogent response to their president? what do you look for from

leadership of the republican party in the next 24 months? kim: november 7 will be a hit it for them.- a pivot republicans are likely going to test how close they want to remain to a president who was not able to get the troops to come out during a midterm election. gowdy is a canary here. there have been others. flake and corker, not as much follow-through. tom: this is important. -- some really a washington kevin cirilli in washington just brought up gowdy. are there others who want to voice criticism? kim: we will find out. for the white house, they have to be careful how they attempt to punish people who step outside the circle. it may encourage others and that may become an institutional conflict. the white house versus congress as opposed to partisan.

tom: this is important, on gdp expectation. 6% in my head for china. sub 3% for the united states. is that the china call? donald: 6.5% is a reasonable call for the next year or two. 3%, no difficulty with the u.s. longer-term. 6% in china will become 3%. tom: 3% gdp? donald: 10 years from now, china's growth rate will be 3%, minus labor force. francine: let me bring in gina martin adams. when you look at the fundamentals for china, we don't know what that means for u.s. financials. china opens up? maybe what they promised? have you see that relationship? noted earlier that

this is wait and see. the equity market is trading on real data and real action now as opposed to three months ago where the rhetoric, trade policy rhetoric, chatter moved stock prices. we are not seeing that today. it is reflective of migration in equity market interpretation of commentary. commentary, not action. until it becomes action it does not affect pricing. equity market will trade on pricing. if we see aluminum prices start to explode higher, steel prices explode, it will impact users and sellers of products. that is the story for equity markets. trade is noise until it affects pricing, then it becomes something they trade on. francine: don, if you go back to 3% you were talking about -- in 10 years will china have changed the shift to an economy that is as large that consumes the world goods more?

donald: already changing rapidly, francine. consumer sector one decade ago was 40% of the economy. now it is over 50%. the developed world is 60% to 70%, that is happening in china. 3% growth rate is not dangerous. that is what gdp potential will be. it will still be by far the biggest driver of global economic growth. tom: in a totalitarian regime, can they sustain a 50% decline in gdp growth and maintain societal calm? donald: yes. tom: how? donald: all you need to do to remain in power is convinced the people you are doing a reasonable job on what matters to them. you matters is clean air, saw in shanghai last week. tom: you say it is getting better? donald: it is getting better. clean-air, decent job growth, affordable housing,

anticorruption. these are the things that get you thrown out if you don't -- tom: i don't know where you are on gdp, can wallace, we have a populist revolt in america across both parties. where does that fill out in the 6%t five years given he says to 3% gdp in china? same move here? kim: factors in both parties are looking for answers from political leadership and they don't see them. legislation is in the small ball court. there is not anything meaningful going on, we are not doing anything reliably about infrastructure. tom: what do you predict for the democrat party? doesey find a new voice or it become the octogenarian party? kim: they have factions in danger. the action on the hard left is rising along with populism. i'm not think it will take over but leadership have taken notice

and are paying more attention to state legislative races and sub federal races as a reflection of getting closer to the voters. tom: thrilled to have you both here. good conversation on international relations with china. gina martin adams with us as well. we shipped to financial, coming up. zurich, switzerland. mario greco, we will speak to him on a fractious europe. markets calm her today and don't forget, job data tomorrow across all of bloomberg. beneath the headline data. .- markets calmer red sox play 1996 baseball. this is bloomberg. ♪ two, down, back up!

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to appoint a new prime minister but waiting for a signal from the populist who announced him an enemy of democracy. watchve-star movement away from china to form a coalition government. sergio mattarella wants to find out if they are ready to revive it. a former executive is being forced to wait. the european union weighing a stronger warning on risks of brexit talks collapsing if the u.k. fails to lay out its position more clearly next month. bloc once a more detailed view of how to keep the irish border open. theresa may has not produced a written proposal the eu regards is necessary to move negotiations forward. the european union breaking for a trade offensive from president donald trump, amid a report that the u.s. is posed to impose steel. on aluminum and

meetings in paris this week. eu leaders staging a last attempt to convince wilbur ross for extended relief from duties. wall street closer to rolling back toughest trading restrictions imposed after the crisis. formally kicked off compliance costs. they will take public comments before a formal vote. 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. salek, this is bloomberg. francine: thank you so much. the morgan stanley chief executive, james gorman says he disagrees with george soros, that the european union is breaking up. he spoke up with our china

correspondent at the summit in beijing. >> it has been interesting. the last couple years, i have focused on, we have extraordinary global synchronized growth from japan to the u.s., china, southeast asia, across continental europe. global synchronized growth yet we have had these political eruptions, which is what has disrupted that, whether it is brexit, italy, spain with the coming elections, angela merkel trying to pull together the coalition. it is almost competition between inexorable corporate growth earnings improvement, economic strength against political instability and the rise of populism. mini crisis, which lasted 24 hours, is another manifestation of the problem. reporter: that sounds like you

would take a more nuanced view than george soros, who said we are facing another potential crisis and the eurozone faces a threat? >> i think that is ridiculous. i don't think we are facing a next essential threat. this is something that has played out over 15 years. there is essentially in many countries around the world, a sense that the average performance of the economy is better than the individual performance of citizens in that country. that is what has given rise to populism. this has been a long evolving political trend we are facing. i don't think the eurozone is in jeopardy. reporter: how to investors position in this climate? >> you don't react to 24 hour news. moved 30ar in the u.s. basis points down overnight and then rebounded. you don't respond. we are not traders.

these are not hedge funds. investors are trying to preserve capital, generate decent returns. my reaction is, you watch for a while. francine: that was the morgan stanley chief executive and chairman james gorman speaking exclusively with tom in beijing. the former risk, head of the largest insurance responsible,aly, others now, the chief executive, mario greco joins us. that was quite a cv. you are doing a turnaround at zurich. we need to talk on that. first of all, mention your exposure. our exposure to italian is limited. that is a consequence not of

financial choices but of the unfortunate fact that our market share in italy is not bigger than 3% of the market. the exposure is really quite irrelevant. onever, i remain optimistic the economic improvements in italy. italy has been improving on gdp over the last two years. this year will be another strong year. this is what really matters. the rest is political changes and turmoil. francine: if you look at the yields and fixed-income, does it pushing toward investing in other areas? mario: not really, not really. we can't react on such a short amount of time to markets, our view is unchanged. equities will do quite well through 2018. u.s.,nk in europe and the

rates will go up, which will put pressure on the values of the debt. we have been preparing for this for quite a long time and we have not changed the view because the last few days of events. francine: what does it mean for ecb policy? i remember are great interviews, you are trying to figure out the politics in italy and what it means for european growth in general and what it means for central-bank policy. mario: ecb has to continue doing what they plan to do, moving into tapering, getting out of qe reports. we need to see and get back to a normal state of the economy. qe has been good for the stability of europe but has also

changed the underlying dynamics of the markets, ecb is planning itreduce and then stopped and i think they should just continue doing that. tom: good morning. -- when you were were at rochester, i don't know if you study with the giant of rochester at economics? carl would have told you and me, you have to clear markets. i see no indication through 10 years, that there is a real desire to clear the financial system of europe, like we did in america. are you optimistic europe can clear the system whether italy, greece or some of the german issues as well? where is the ability to clear the system? carl. i did study with i am glad you remember him, he

was a great economist. i am optimistic. europe will get there. it moves. slow motion speed compared to the u.s. and other markets. that is about europe, where things have to be discussed with lots of countries, where nothing happens as fast as maybe in asia. yes, it will keep moving. i'm very optimistic it will get sorted out. and slow that moving motion pace within the political populism we have been covering, does it include synergy? mergers and acquisitions, either on intra-country basis or intraregional basis? of noiseere is a lot about it. for zurich, we

have a strategy and the strategy is to follow industry transformation, and leave the transformation and become oriented, the best customer oriented company in our industry. m&ao that, mergers, activity, is not a priority for us. forecasting targeted m&a transaction and we will continue that but all we do is income transactions where we can strengthen our strength in each given country, as in australia, argentina, u.s. one year ago. we will stick to that and maintain our discipline and focus. francine: overall does the european insurance sector need consolidation? mario: i don't think so.

we are in the middle of fundamental industry transformation. consolidation does not solve issues, it does not make it easier for any of us to confront the issues of the transformation. the transformation is driven by consumers and technology. the size of the company doesn't matter, for companies. what we have to do is without distractions, in the shortest possible amount of time, serve customers with the new technologies as they expect us to do. everything else is. a distraction and does not help us. if you have a strategy and a plan to optimize it works. if you do not, m&a, has always happened, it is a nice way to push things forward and have shareholders forgetting about the fact that you do not have strategy or a plan to improve. tom: mario with us.

lots tocontinue here, talk about including equity markets. on radio, your morning briefing coast-to-coast. this is bloomberg. ♪

♪ sebastian: this is "bloomberg surveillance," let's get the bloomberg business flash. the fcc reviewing whistleblower claims. the insurance company inflated a says --mpany, affleck aflac says the rumors are without merit. businesses.ng back

the bank may retreat from a couple small business areas, fundamentally the u.s. is the most important market. comments came as they are weighing the outcome of job cuts. barclaysce chief at investment banks, one of the most senior female executives have left the company. she resigned earlier this month. in september, 2016, after spending two years at jpmorgan. that is the bloomberg business flash. tom: thank you. of zurich insurance and gina martin adams of bloomberg intelligence. gina, let me begin with you.

you and i have seen the advance of selected american banks who did not get into as much trouble or cleared their problems quicker than other american banks, maybe all european banks. i was talking earlier about how markets clear. why did banking clear in america so much better than others? gina: it was an earlier response. if you look at the sequence of actions following the great depression, the u.s. regulators were quicker to action. in support of the banks and in establishing new regulatory rules. tom: directors? gina: i don't know if that is the answer or not. what you see in prices and stocks is a clear response to a shift in regulatory arrangement. what we have going forward is an environment in which the u.s. banks are increasingly experiencing, not deregulation

but a rollback of regulatory -- as the fed it starts to ease the balance sheet, it is becoming less integrated in financial markets. banks are more nimble in the united states, still somewhat constrained. tom: does this come to the board level? i don't want you to speak about individual european banks. within that, is management board structure of the european banking model -- does it need to change? it is an interesting question. what the differences between the u.s. and europe, the decisive action that the fed took. europe does not have anything similar to that, especially during the crisis. remember that in europe, you still have local central banks

responsible for taking action inside countries. about regulatory organization in the continent, the region, than the specific boards of banks. francine: there is a tech driven shift within the industry. ai, machine learning, telematics, things you're looking at closely. how will insurance sector shift because of transformational changes? mario: fantastic revolution, fantastic opportunity for us, it creates connectivity. insurance has never been able to see, track customers or properties of customers. theythese technologies do, connect us to the customers. they put us in the fantastic opportunity of anticipating.

instead of reimbursing a claim, we can prevent one. risk management services, prevention, becomes more and more important. francine: will it have pricing implication for the industry? mario: on pricing, through data, through informational connectivity, price becomes much more subjective, individual, tailored and often lower than before. it creates a different social scenario. there is less mutuality. francine: what it means also, your areas of investment will be different? mario: totally. millionnvesting 800 each year in the new developments, new technologies, artificial intelligence, data, new things each year. this is massive. it started three years ago.

it accumulates every year following the results of the previous year. it is a massive transformation. tom: thank you so much. gina martin adams with us in new york as well. coming up, david westin on balance of power. john kasich of ohio, former governor, look for that. this is bloomberg. ♪

♪ tom: "bloomberg surveillance," in london and new york. jobs data tomorrow. single best chart with gina martin adams. bloomberg intelligence chief equity strategist, she knows the chart. a million years ago, i used the dow in 1900. goingng from gartman, from lower left to upper right. has the theory changed? gina: i don't think it has. perhaps we got overblown and irrationally exuberant on a short time horizon last year and we are giving it time this year but frankly the gold trend is alive and well.

tom: you are too young to remember. 2003, the fossils -- the profit model wrong and 98, 1999. we are not there. we know the profit accounting better than we did then? gina: there are issues with profit accounting. that is one reason investors are paying attention. tom: balance sheet or income statement? gina: both. they are paying attention. balance sheet is showing profound impact on equity performance. highly leveraged companies are underperforming. it is completely rational on that perspective. with respect to earnings, investors acknowledge there is manipulation in the stream. they manage earnings to the extent they want to report earnings the market appreciates. they are trading more frequently on cash flows. there is rationality to the

equity market. comparing that to the late 1990's is irrelevant. valuations are not near where they were. inflation in multiples in the late 1990's was extraordinary relative to today. this year, the relative has come in, trading at longer-term, five-year average. there are distinct differences between today and the 2000 bubble. that came after we had 20 years of run up in stock prices. we have had nine, with massive corrections in 2011 and 2015. it is a market that has been consistently climbing. the amount of political risk today, we talked about all morning. it is stunning. it is stunning. francine: to make it clear, is it more dangerous than back then or less? gina: substantially less from an equity valuation perspective. valuations are 10 turns lower

than they were at the peak of the market bubble. analysts are more rational. is a misconception that they are constantly overestimating potential market returns. since 2009, analysts have underestimated market returns in half of the years. years they have overestimated, it was only marginal. tom: we talked to injure about this earlier, this is important -- to andrew about this earlier, are we not seeing labor income growth because the incentives of executives have so radically changed, they know that wage growth for labor comes out of their pockets? gina: that could be part of it. executives are incentivized to appease shareholders, through their own pay packages. that has been around for a while. the reason we are not seeing wage growth is partially because we are seeing benefits growth. the cost of providing employment is not just in the wage. it is in the form of benefits. benefit cost is exploding.

tom: that is employee cost index. 18 flavors of how you measure wages. michael mckee is expert at this. i go to eci, which throws in the benefits. gina martin adams, thank you so much. we will move forward with the conversation on china, on bloomberg surveillance on radio today as well. i,elieve, jon ferro and reunited? ♪ reunited. foreign-exchange, yen, flat. this is bloomberg. ♪

♪ >> i think that is ridiculous.

i don't think we are facing a threat at all. alix: that is ridiculous. james gorman says george soros warning of an eu breakup was unrealistic. he sees higher yields and four that hikes this year. mariano rajoy on the brink of being ousted by socialists while the italian president giving populist leaders one more chance to form government. hello inflation. upside with latest readings on u.s. prices on deck. david: welcome to "bloomberg markets," i'm david westin with alix steel. things have been better? alix: italy seems like a thing of the past. david: james gorman. alix: spanish politics is fascinating. it seems like no one is interesting. two-year yields in spain are negative versus italy now positive. huge move this week. fascinating. socialist